Following the release of December's US employment data, which more than doubled expectations by showing that 312,000 jobs were created, the S&P 500 soared 3.4% on Friday. Investors took comfort in the thought that recent fears of an economic slowdown may have been overdone. The "glass half full" reaction was helped by an interview with Federal Reserve Chair Jerome Powell, in which he stressed that policymakers were "listening carefully" to the market and would be patient and flexible.
The jobs release did much to counter the pessimism generated by a plunge in the US ISM survey of manufacturing activity on 3 January. Aside from the headline increase in December payrolls, upward revisions added 58,000 to the figures for the prior two months. A rise in the labor force participation rate also suggested that a strong economy is drawing discouraged workers back into the job market. Finally, a 3.2% increase in average hourly earnings – matching the high since 2009 – bodes well for consumer spending, without being so strong that it will fuel inflation fears.
Overall, we see the news as a reassuring sign of US economic health and as evidence that market sentiment can still be boosted by positive economic data. We continue to hold an overweight position in global equities.
That said, with various uncertainties overhanging markets, a more sustained rally will likely require solid progress in US-China trade talks, confirmation that the Fed is indeed accounting for market weakness in its policy setting and further evidence that worries over the outlook for the global economy were misplaced.
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