Markets Rally as Rate-Cut Odds Edge Up After Jobs Report

Stock markets around the world rallied on Friday, December 6, 2024, as investors reacted to a stronger-than-expected jobs report, which boosted odds of a rate cut by central banks. The mixed jobs data showed job growth surpassing expectations in both Canada and the U.S., but unemployment rates rose due to increased labor force participation. This counterintuitive market reaction was driven by the rising unemployment rates, which increased the likelihood of a super-sized rate cut by the Bank of Canada and the Federal Reserve.

The jobs report released on December 6, 2024, revealed an unexpected increase in jobless rates for both Canada (6.8%) and the U.S. (4.2%), despite strong job additions (50,000 and 227,000 respectively). This counterintuitive reaction, where the market reacted negatively to seemingly positive job growth, was due to the rising unemployment rates. As more people entered the workforce, the increase in joblessness boosted the odds of a super-sized rate cut by the Bank of Canada and the Federal Reserve. This shift in interest rate expectations led to a rise in stock indexes, as investors priced in a more accommodative monetary policy environment.

Following the release of the jobs report, market expectations for rate cuts have shifted significantly. Prior to the report, traders were pricing in a 71% chance of a quarter-point rate cut by the Federal Reserve at its December 18 meeting. However, post-report, the odds jumped to 91%. Similarly, the chances of a half-point rate cut through the January meeting increased to 23.3% from 19.7%. Meanwhile, the likelihood of rates being held steady through the next two meetings fell to 6.7% from 21%. These changes reflect a market reaction that is solidly negative, despite the headline job numbers appearing positive.



Sector-specific performance, particularly in chip stocks, played a significant role in the market's reaction to the jobs report. The Bloomberg report on the Biden administration's consideration of less restrictive barriers on semiconductor sales to China boosted chip stocks, with AMD, KL, and Nvidia jumping more than 1% each. This positive sentiment contributed to the iShares Semiconductor ETF (SOXX) adding nearly 1% in premarket trading. The semiconductor sector's strength reflects investors' optimism about future growth, despite geopolitical tensions and potential supply chain disruptions.

The rally in stock markets can be attributed to the strong jobs numbers, which boosted investor confidence. Tech stocks, despite concerns over rising interest rates, attracted attention due to their long-term growth potential and strong management. Amazon and Apple are seen as enduring investments, despite market downturns. Additionally, under-owned energy stocks gained traction as investors sought undervalued opportunities in a balanced portfolio strategy.

In conclusion, the strong jobs numbers released on December 6, 2024, led to a rally in stock markets, driven by increased rate-cut odds and sector-specific performance. The mixed data showed job growth surpassing expectations but unemployment rates rising due to increased labor force participation. This counterintuitive market reaction was driven by the rising unemployment rates, which increased the likelihood of a super-sized rate cut by central banks. The semiconductor sector's strength reflected investors' optimism about future growth, despite geopolitical tensions and potential supply chain disruptions. Tech stocks, particularly enduring investments like Amazon and Apple, and under-owned energy stocks, gained traction as investors sought undervalued opportunities in a balanced portfolio strategy.