Global stocks shot higher on Friday following a strong US jobs report and dovish comments from Federal Reserve Chair Jerome Powell on the prospects for higher interest rates.
Those back-to-back market-friendly developments helped US and European stock bourses surge higher and set aside for now nervousness over trade wars, a US government shutdown and a slowing economy that have pressured stocks for most of the last month.
“A solid set of job numbers and some comfortable words from the chairman of the Federal Reserve have been just the ticket to get markets into bullish mode,” said Chris Beauchamp, chief market analyst at online trading platform IG.
The Dow finished up 3.3 percent, or nearly 750 points, to end the week at 23,433.16, more than making up for the 2.8 percent slide on Thursday amid worries over slowing growth.
Bourses in Paris, Frankfurt and London all surged at least two percent, also boosted in part by the US momentum.
Earlier, Japan’s Nikkei had slumped 2.3 percent, due in part due to a strengthening yen, which advanced further on the US currency following Powell’s dovish commentary.
The losses in the Japan also followed Thursday’s grim Wall Street session, which saw major indices end down more than two percent after Apple slashed its revenue forecast on weak demand in China and a US report showed manufacturing activity slumping to a two-year low.
– Dovish tone –
Employment data showed the US added 312,000 jobs in December, much above analyst expectations, strengthening the case of those who have argued that markets have overreacted to signs that US growth may have peaked.
Stocks rallied further after Fed Chair Jerome Powell told a gathering of economists that the US central bank had no “pre-set” plan for interest rates and was carefully monitoring economic conditions.
“Markets are expressing concerns about global growth in particular and trade negotiations,” Powell said.
“We’re listening with — sensitively to the message that markets are sending and we’ll be taking those downside risks into account as we make policy going forward.”
Powell “said exactly what the markets wanted to hear,” said Gregori Volokhine of Meeschaert Financial Services. “He will adapt to economic conditions and could provide support if it’s needed.”
But Jason Schenker of Prestige Economics suggested the Fed could still take a hard line.
“Despite this dovish tone, we are skeptical,” Schenker said in a note. “The Fed has willfully ignored trade and interest rate risks while talking a hawkish game.”
Many analysts are girding for a rocky year for markets, owing to the US-China trade war and other unresolved matters, including a government shutdown fight in Washington that President Donald Trump warned Friday could last years as he battles for funding for a border wall with Mexico.
Stocks could be further pressured when companies report quarterly earnings later this month, according to DataTrek Research Co-Founder Nicholas Colas.
“The upcoming earnings season will likely see managements reset 2019 earnings expectations to something close to flat versus 2018,” said Colas in note on Friday, adding that stocks could push higher in the year even if January is a month of losses
Analysts have also warned that increased gloom in financial and business circles could have a self-fulfilling nature.
A report Friday from JPMorgan Chase said trends in financial markets suggest investors have priced in around a 60 percent chance of a recession, while economists have put the odds of a recession within one year at around 40 percent.