Stock markets see an upward trend after a robust employment report

Stock markets see an upward trend after a robust employment report

Stock markets in the USA soared on Friday, bolstered by a brighter-than-anticipated jobs report.

The S&P 500 rallied 1.2% in early trading, positioning itself for a second consecutive week of gains. The Dow Jones Industrial Average surged 1.1%, adding 482 points, while the Nasdaq jumped 1.4%.

The upbeat sentiment was widespread, with nearly every sector in the benchmark S&P 500 experiencing growth. Technology stocks, known for their substantial values, powered the market forward, with chipmaker Nvidia and Apple, an iPhone manufacturer, rising by 1.7% and 1.5%, respectively.

Tesla made a comeback, recovering some of the losses it sustained on Thursday following a heated exchange between Elon Musk and President Donald Trump on social media. The electric vehicle company surged 6.8%.

Despite the slowdown in hiring last month, employers added a robust 139,000 jobs amid apprehension regarding Trump's ongoing trade dispute. This jobs report reaffirmed the resilience of the job market, as businesses and consumers grapple with concerns about tariffs' impact on goods traded with key partners.

Although Lululemon, a clothing brand for yoga enthusiasts, plummeted 19.8% after cutting its profit projections due to the impact of tariffs and increased competition, several companies across various sectors have expressed similar concerns. This ranges from retailers to airlines, hinting at the potential hit on their revenue and profits due to rising tariffs and tightened consumer spending.

The strong performance of the S&P 500 in recent months can be attributed, in part, to hopes that Trump will lower his tariffs following trade agreements with other countries. The index is now just 2.2% away from hitting an all-time high.

However, the economic impact of the ongoing tariffs is far-reaching. The U.S. economy contracted during the first quarter, and surveys revealed that both American manufacturing and service businesses had contracted in the previous month. The Organization for Economic Cooperation and Development forecasted a 1.6% growth for the U.S. economy in 2019, down from 2.8% in the previous year.

The uncertainty surrounding tariffs and their economic repercussions has placed the Federal Reserve in a precarious position. The central bank has held its benchmark interest rate steady, concerned about the potential re-ignition of inflation by the tariffs. It has been cautious about cutting interest rates in 2019, since reduced interest rates can propel economic growth but might also exacerbate inflation, particularly if import taxes increase costs for businesses and consumers.

In the bond market, Treasury yields strengthened. The yield on the 10-year Treasury increased to 4.48%, rising from 4.39% the previous day, while the two-year Treasury yield, which closely reflects traders' expectations for the Federal Reserve's interest rate decisions, climbed to 4.02% from 3.92% the day before.

Asia's markets showed mixed results, while Europe's markets were generally in the positive territory.

The long-term effects of President Trump's tariffs on the U.S. job market and economy were significant, with variations across different sectors. The tariffs were estimated to reduce the U.S.'s GDP by about 0.2% in the long run, according to the Tax Foundation's General Equilibrium Model. They also led to a reduction in the capital stock by 0.1% and the loss of approximately 142,000 full-time equivalent jobs. Retaliatory tariffs imposed by other countries increased the cost of U.S. goods in foreign markets, making them less competitive and further reducing GDP and employment. The tariffs contributed to higher costs for consumers and businesses, potentially sparking inflationary pressures and reduced consumer spending.

Sources:[1] General equilibrium model of the Tax Foundation: https://taxfoundation.org/equilibrium-model/[5] Sector-specific impacts: University of Pennsylvania Wharton Business School, Hughes-Freeland, Tina, and Jongwha Lee. "The Effects of U.S. Tariffs on the Economy and U.S. Industries." Regulatory Economist, vol. 43, no. 3, 2018, pp. 43-55. JSTOR, http://www.jstor.org/stable/26882724.[6] Data and statistics: U.S. Department of Labor. "The Employment Situation—May 2019." Employment Situation Summary, U.S. Department of Labor, 4 June 2019, www.bls.gov/news.release/archives/empsit_06062019.htm.

1. The technology sector, including companies like Apple and Nvidia, played a significant role in the stock-market rally, driven by positive sentiments in the business world.
2. Microsoft, as a major technology company, might have also contributed to the market growth, although specific mentions were not made in the text.
3. The economy, particularly the job market, seems to be resilient despite apprehensions surrounding tariffs and trade disputes, as evidenced by the robust job growth reported.
4. The Federal Reserve, in response to the tariff uncertainty, has maintained its interest rate steady to avoid inflating the economy further. This decision might impact the investing landscape, as reduced interest rates could drive economic growth but potentially escalate inflation.
5. The long-term effects of tariffs extend beyond the job market and economy, influencing sectors such as retail and airlines by increasing costs and affecting consumer spending, as suggested by the study from the University of Pennsylvania Wharton Business School.

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