NEW YORK, N.Y. – The government’s monthly survey of the U.S. job market is always important on Wall Street. It’s even more important these days. Investors are trying to figure out when the Federal Reserve will decide that the economy is strong enough to thrive without its extraordinary stimulus measures.
Investors are always happy to see signs of strong hiring, which is consistent with a strong economy. What they are less happy to see is clear evidence that the economy has recovered so much that the Fed will pull back on its huge bond-buying program, which has been an important factor in this year’s stock market rally.
The Fed’s $85 billion in monthly bond purchases has kept long-term interest rates extraordinarily low to encourage borrowing and hiring. The Fed’s actions also drive the prices of bonds higher, giving investors an incentive to buy stocks instead of bonds.
As soon as the Fed slows its purchases, the thinking goes, bond prices would fall and investors would shift money out of stocks and into bonds. In fact, the only two losing months in the market this year, June and August, occurred as investors worried that the Fed might pull back on stimulus before the economy was ready.
Here are three recent examples of big moves in the stock market on days that the Labor Department released its jobs report. The job additions are initial figures and often get revised later.
Economists expect the government to report Friday that U.S. employers added 180,000 jobs last month.
— JUNE 7:
WHAT HAPPENED: The government reported that U.S. employers added 175,000 jobs in May, a number that struck just the right balance for investors: not too many, not too few. The report suggested that the U.S. economy was expanding, but not so strongly that the Fed was close to ending its bond purchases.
HOW THE MARKET REACTED: Stocks surged. The Dow Jones Industrial average jumped 207 points, its third-biggest gain of the year. It ended at 15,248.12.
— OCTOBER 22:
WHAT HAPPENED: The Labor Department said that just 148,000 jobs were added in September, far fewer than economists expected and a sign that employers cut back on hiring ahead of a partial shutdown of the federal government in October. The September survey was delayed by the shutdown. Investors interpreted the report as a sign the Fed would keep up its stimulus program.
HOW THE MARKET REACTED: Investors liked what they heard. The Dow gained 75 points and the Standard & Poor’s 500 index rose to its fourth consecutive record close of the year. The Dow ended at 15,467.66. The S&P 500 finished at 1,754.67, up 10 points.
— NOVEMBER 8:
WHAT HAPPENED: Employers added a surprisingly large amount of jobs in October: the 204,000 figure was far bigger than economists expected. The government also said hiring was more robust than initially reported for August and September. The number reflected consistent, solid growth in the economy but didn’t necessarily guarantee that the Fed was about to pull back.
HOW THE MARKET REACTED: The Dow jumped 167 points, erasing its loss from the day before and putting the index back at a record high. The blue-chip index closed at 15,761.78. The S&P 500 closed just a point below its latest record, at 1,770.61.