US Stocks Rebound: Nasdaq and S&P 500 Gain on Bullish Labor Market Report

S&P 500 and Nasdaq Rise on Positive Jobs Data

U.S. markets saw modest gains on Friday as the S&P 500 and Nasdaq posted small upticks, while small-cap stocks notably outperformed the broader indexes. The positive sentiment was driven by labor market data, which alleviated concerns over a potential slowdown in job growth and boosted expectations for a milder interest rate cut by the Federal Reserve.

Jobs Data Eases Rate Cut Concerns

The U.S. Labor Department’s report showed a solid increase in job growth for September, with nonfarm payrolls rising by 254,000, significantly above the forecasted 150,000. Unemployment also dipped to 4.1%, reinforcing the notion that the economy remains resilient. This strong labor performance has reduced the urgency for the Federal Reserve to enact significant interest rate cuts in the near term.

As a result, traders have recalibrated their expectations for the upcoming Federal Reserve meeting in November, with bets for a 25-basis-point rate cut surging to 98.3%, up from 71% before the labor data release. The report effectively quashed speculation of a larger 50-basis-point reduction, with many analysts now adjusting their forecasts to reflect the likely smaller cut. BofA Global Research revised its own forecast to a 25-bps cut, in line with market sentiment.

Small Caps and Energy Stocks Lead Gains

The Russell 2000 index, which tracks small-cap stocks, rose more than 1% on Friday. These stocks typically benefit from a low-rate environment, and the prospect of a modest rate cut gave them a boost.

Meanwhile, energy stocks also surged, with the sector gaining nearly 7% for the week. Crude oil prices rose sharply due to escalating geopolitical tensions in the Middle East, particularly following Iran’s missile attack on Israel, which heightened concerns over potential supply disruptions.

Among the energy names, companies like Exxon and Chevron saw significant upward momentum, contributing to the sector’s largest weekly jump in nearly two years.

Megacap Tech and Airlines Diverge

Tech giants like Tesla, Amazon, and Netflix were among the key drivers of the Nasdaq’s rise, as investors flocked to these megacap names on Friday. Despite the tech sector’s gains, Spirit Airlines experienced a steep 25% drop after reports indicated the airline was in discussions with bondholders regarding a possible bankruptcy filing. The airline’s struggles added volatility to the broader market, but tech strength and small-cap gains helped to offset these concerns.

Market Forecast: Cautious Optimism with Rate Cut on the Horizon

Looking ahead, traders can expect cautious optimism as the Federal Reserve is likely to implement a 25-basis-point rate cut in November, which should provide some support for equity markets. While the job market’s resilience is a positive sign, geopolitical risks and sector-specific issues, such as the airline and energy sectors, may introduce short-term volatility. The outlook for the S&P 500 remains mixed, with a slight bullish tilt driven by the prospects of lower rates and strong corporate earnings in key sectors.