Stock and bond markets take positive jobs news with grain of salt

The Standard & Poor’s 500 Index(CME:ESM14) fluctuated after briefly topping a record, while Treasuries(CBOT:USM14) erased losses as data showed a faster-than-forecast increase in hiring and the United Nations Security council prepared to hold an emergency meeting on Ukraine.

The S&P 500 was little changed at 1,883 at 11:14 a.m. in New York after the gauge briefly topped its April 2 record on a closing basis. The 10-year Treasury yield fell two basis points to 2.59 percent, the lowest since Feb. 3. The Bloomberg Dollar Spot Index erased earlier gains to fall for the fourth time in five days. The United Nations Security Council said it planned an emergency meeting on Ukraine at 12 p.m. in New York today.

“On a Friday, people are going to be more inclined to be less long going into a weekend with potential military action happening in the Ukraine,” Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said in a phone interview. “People don’t want to walk in Monday morning and be negatively surprised by a down market because of military action in Europe, so they’re selling off.”

Ukraine sent armored vehicles and artillery to retake Slovyansk, a stronghold for pro-separatist forces, defying a demand by Russian President Vladimir Putin to pull back troops. U.S. nonfarm payrolls rose last month by the most in two years and the jobless rate fell to 6.3 percent, a sign that economic growth is poised to accelerate as the Federal Reserve pares monthly bond-buying and considers when to raise interest rates. Factory orders for February rose 1.1 percent, less than the estimated 1.5 percent.

“It’s a pretty strong report that suggests the Fed will continue to taper,” Anthony Valeri, a market strategist with LPL Financial Corp. in San Diego, said in a phone interview. The firm oversees $350 billion. “This is the first strong confirmation we’re unwinding some of the winter weakness. I think it keeps the Fed rate hike in 2015 very much on track.”

U.S. employers added 288,000 workers, the biggest gain since January 2012 and followed a revised 203,000 increase the prior month that was stronger than initially estimated, Labor Department figures showed. The median forecast in a Bloomberg survey of economists called for a 218,000 advance.

The Fed said it will keep the benchmark interest rate close to zero for a “considerable time” after its bond-buying program ends. It reduced monthly debt purchases to $45 billion, its fourth straight $10 billion cut, and said further reductions in “measured steps” are likely.

The S&P 500 has climbed 1.1 percent this week, while the Dow Jones Industrial Average fluctuated today near its all-time high.

The drop in the unemployment rate from March’s 6.7 percent came as the agency’s survey of households showed the labor force shrank by more the 800,000 in April. The so-called participation rate, which indicates the share of working-age people in the labor force, decreased to 62.8 percent, matching the lowest level since 1978, from 63.2 percent a month earlier.

“While the headline certainly suggests conditions are improving, you also need to focus on the labor force participation rate,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., which oversees $290 billion, said in a phone interview. “It’s a little disappointing as people continue to drop out of the labor force.”

 

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