US stocks jumped higher on Friday after September jobs growth marginally missed forecasts but the unemployment rate in the world’s biggest economy surprisingly fell, matching a 50 year low, providing mixed messages for policy makers at the Federal Reserve as they assess a recent weak run of data.

Investors also took heart from comments by Fed Chair Jerome Powell on Friday, who reiterated that the US central bank is “examining strategies” to try to help it reach its goals.

At the close, the Dow Jones Industrials Average was up 372.68 points, or 1.4% at 26,573.72, having ended 0.5% higher on Thursday after a 400 point turnaround from an opening drop in that session, a recovery after a near 700 points drop in the first two sessions of October.

The broader S&P 500 index and tech-laden Nasdaq Composite also both gained 1.4% on Friday, after similar volatile performances in the past week.

READ: Volatile US blue-chips end higher, assuage October plunge as dire services data fuels further rate cuts talk

Chris Beauchamp, chief market analyst at IG commented: “The bulls have sought to wrest control away from the bears who have dominated for most of the week. Yesterday’s post-ISM rebound has continued in the wake of a non-farm payrolls report that echoes the ‘Goldilocks’ reports of years past – weak job growth but not too weak, and slightly slower wage growth, but not too slow.

“Today’s figure still leaves the Fed on course to ease policy this month, but without having to become more drastic in its approach. While sentiment remains cautious ahead of trade negotiations this week it is still clear that there is plenty of cash on the sidelines that is prepared to move into action when a swift drop like that this week provides the opportunity to snap up some bargains.”

Payrolls rise marginal

US non-farm payrolls increased by 136,000 jobs in September, below forecasts for a 145,000 rise, although job increases in both August and July were revised up by a combined 45,000 – the original 130,000 August increase was revised to 168,000. The monthly average increase for this year was 158,000.

However, the jobless rate dropped to 3.5% in September, down from 3.7% in August, marking the lowest jobless rate since December 1969 when it also logged in at 3.5%. Economists had expected the rate to remain unchanged.

Meanwhile, average hourly earnings (AHE) climbed 2.9% from September 2018, a slowdown from previous months but still higher than inflation.

A run of poor data at the start of October caused markets to crash heavily earlier this week before the bounce-back Thursday as investors yesterday chose to focus on expectations that the weak economy will prompt the Fed to be more aggressive on interest rate cuts when it meets at the end of this month, having already delivered two quarter point rate cuts in the past few months – the first monetary easings in over a decade.

The CME’s Fedwatch indicator yesterday put the chance of an interest rate cut by the Fed at its late October meeting at 90.3%, up from 77% on Wednesday and 49% a week ago.

The closely watched Labour Department report came on the heels of a string of weak US economic reports, including a plunge in manufacturing activity to a more than 10-year low in September and a sharp slowdown in services industry growth to levels last seen in 2016.

In addition, the private sector ADP National Employment report showed a deceleration in private payrolls growth last month.

Trade trade comment

The week’s data provided indications that President Trump’s 15 month long US-China trade war has eroded business confidence, knocking investment and manufacturing.

Adding to the pressure, on Wednesday the World Trade Organization backed a US request to impose tariffs on US$7.5 billion of European goods due to the EU subsidies which were previously handed to aircraft manufacturer Airbus, sparking yet another escalation in Trump’s trade crusade

However, those worries cooled somewhat as President Trump on Friday suggested that a deal in trade could be achieved between Beijing and Washington.

Marketwatch reported that, speaking to reporters at the White House before a trip, Trump said there was a “very good chance” that a deal on trade could be struck. Chinese and U.S. officials are expected to meet in Washington on October 10-11.

 — Updates for market close, additional comment —

Contact the author at jon.hopkins@proactiveinvestors.com