Dow and S&P 500 Jump on Jobs Report

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) and S&P 500 (SNPINDEX: ^GSPC  ) are making significant gains following a better-than-expected jobs report. As of 1:30 p.m. EST, the Dow is up 100 points to 15,694, while the S&P 500 is up 17 points to 1,764.

There were four U.S. economic releases today.

Report

Period

Result

Previous

Nonfarm payrolls

October

204,000

163,000

Unemployment rate

October

7.3%

7.2%

Personal income

September

0.5%

0.4%

Consumer spending

September

0.2%

0.3%

Core PCE price index

September

0.1%

0.2%

University of Michigan Consumer Sentiment Index

November

72.0

73.2

There are three metrics to pay attention to: jobs growth, the unemployment rate, and the Core PCE price index.

The jobs report showed the economy added an estimated 204,000 jobs in October, better than analyst expectations of 100,000 and better than the upwardly revised September level of 163,000.

The better than expected jobs report caused a sell-off in the bond and mortgage backed securities markets as the good numbers raises the risk of the Federal Reserve ending its long-term asset purchases, which are technically known as Permanent Open Market Operations. Note: the chart is only current up to earlier this week; the 10-year Treasury rate jumped to 2.74%, while the 30-year mortgage rate jumped to 4.27%.

10 Year Treasury Rate Chart

10 Year Treasury Rate data by YCharts.

Today is a big day for the Fed's Treasury purchases with the Fed planning on purchasing between $4.75 billion to $5.75 billion worth of Treasuries with maturities of five to six years. Many have suggested that the cash the Fed is injecting into the economy isn't keeping rates down but is inflating the stock market. There is some credence to that view as the indication of the Fed stopping its purchases in June caused the treasury bond and mortgage-backed-securities markets to spike as can be seen in the above chart.

The jobs report also showed that the unemployment rate ticked up slightly to 7.3%, but that is somewhat distorted by the government shutdown during the jobs report's reference week. The Federal Reserve has said 6.5% is its unemployment target for when it will think about slowing its asset purchases. Some Federal Reserve members, though, have recently argued that 5.5% would be a better target as the 6.5% level is creating uncertainty as the economy is so close to it.

The third metric to pay attention to is the Core PCE price index, the Fed's favored measure of inflation. Core PCE inflation rose by 0.1% in September for a 12-month change of just 1.2%. Many investors have been worried of the Federal Reserve stoking inflation through its actions but in Europe and the U.S. deflation is starting to become a worry as inflation has been steadily trending down. This poses a problem for the Fed as they are somewhat worried about stoking asset bubbles but have a mandate to try and keep inflation stable, which they have decided means a target of 2%.

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