Labor Report Sparks Solid Rally in Stocks…..

The U.S. equity markets rallied sharply, posting a third-straight week of gains, turbocharged by an extraordinary May nonfarm payroll report that showed job growth returned sooner than expected, adding to the already-high optimism surrounding the economic recovery from the severe COVID-19 disruption. Treasury yields, especially on the mid-to-long end of the curve, jumped as bond prices fell. The U.S. dollar was modestly higher, trimming a recent slide, and crude oil prices gained solid ground, while gold tumbled. In equity news, Broadcom posted mixed results and lukewarm guidance, Gap reported a larger-than-expected loss, DocuSign provided positive quarterly results and guidance, and Slack Technologies withdrew guidance for billings. Europe also rallied, while markets in Asia saw modest gains.

The Dow Jones Industrial Average soared 829 points (3.2%) to 27,111, while the S&P 500 Index rallied 82 points (2.6%) to 3,194 and the Nasdaq Composite jumped 198 points (2.1%) to 9,814. In heavy volume, 1.5 billion shares were traded on the NYSE and 6.5 billion shares changed hands on the NASDAQ. WTI crude oil rose $2.14 to $39.55 per barrel and wholesale gasoline gained $0.06 to $1.21 per gallon. Elsewhere, the Bloomberg gold spot price declined $31.91 to $1,682.10 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.3% at 96.96. The markets posted their third-straight week of gains, as the DJIA rose 6.8%, the S&P 500 gained 4.9%, and the Nasdaq Composite increased 3.4%.

May nonfarm payroll report shows employment snaps back from pandemic disruption…..

Nonfarm payrolls surprisingly jumped by 2,509,000 jobs month-over-month (m/m) in May, compared to the Bloomberg forecast of a 7,500,000 drop, and following April’s upwardly-adjusted fall of 20,687,000. Excluding government hiring and firing, private sector payrolls unexpectedly surged by 3,094,000, versus the forecasted plunge of 6,750,000 after falling by a upwardly-revised 19,724,000 in April. The labor force participation rate rose to 60.8% from April’s 60.2% rate, versus an expected dip to 60.1%.

The unemployment rate fell to 13.3% from April’s 14.7% rate, versus forecasts of a rise to 19.0%. Average hourly earnings were down 1.0% m/m, versus projections of a 1.0% rise and compared to April’s unrevised 4.7% gain. Y/Y, wage gains were 6.7% higher, below estimates of an 8.5% increase. Finally, average weekly hours rose to 34.7 from April’s unrevised 34.2, and versus forecasts of a tick higher to 34.3.

The Labor Department said these improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus (COVID-19) pandemic and efforts to contain it. In May, employment rose sharply in leisure and hospitality, construction, education and health services, and retail trade. By contrast, employment in government continued to decline sharply.

Consumer credit, released in the final hour of trading, showed consumer borrowing plummeted by $68.7 billion during April, the fastest pace since 1943, and far more than the $20.0 billion decrease forecast of economists polled by Bloomberg, while March’s figure was adjusted to a decline of $6.9 billion from the originally reported $12.0 billion shortfall. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, fell $10.5 billion, a 4.0% decrease y/y, while revolving debt, which includes credit cards, plunged by $58.3 billion, a 64.9% y/y tumble.

Treasuries fell, as the yield on the 2-year note gained 2 basis points (bps) to 0.21%, the yield on the 10-year note increased 8 bps to 0.89%, and the 30-year bond rate rose 4 bps to 1.66%.

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