(Bloomberg) — Stocks rallied after a private payrolls report pointed to a slowdown in the U.S. labor market that would allow the Federal Reserve to begin cutting interest rates.
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Stocks rose in early trading after data showed that employment at US companies rose in May at the slowest pace since the start of the year. Private payrolls rose by 152,000 last month, according to the ADP Research Institute. The average estimate calls for an increase of 175,000. Treasures are barely budgeted. Swap contracts continued to point to bets on the Fed’s first rate cut in November.
Read: US PREVIEW: PMI to show only tepid rebound in services activity
The latest data shows that the labor market is cooling, but it has been gradual through slower hiring rather than outright job cuts. Fed officials hope this trend will continue to curb demand and tame inflation without putting millions out of work. Friday’s monthly jobs report is expected to show the US added 185,000 jobs in May, while the unemployment rate remained steady.
“It looks like the higher for longer rate environment is now working through the economy and slowing things down,” said Ryan Grabinski at Strategas Securities. “If we get a weak payrolls report in the coming months, the Fed would have cover to cut before the election.”
The S&P 500 was poised to extend gains for a fourth straight session. 10-year Treasury yields were little changed at 4.32%. The loonie fluctuated ahead of the Bank of Canada’s rate decision. Most analysts in a Bloomberg survey expect a cut on Wednesday, although the country’s six largest lenders are divided.
Traders nearly hit the stock mania button in May, a bearish sign for investors that has historically led to muted gains for US stocks in the months ahead.
The Bloomberg Intelligence Market Pulse Index, a sentiment gauge that acts as a contrarian signal, advanced within striking distance of “manic” territory last month, according to Bloomberg Intelligence. It’s a rare sign that has typically dampened U.S. stock returns in the short term, BI data show.
In the three months after the manic reading, the Russell 3000 Index has gained an average of 1.7%, compared with 9.1% after the panic.
Corporate highlights:
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Hewlett Packard Enterprise Co. reported revenue that beat analysts’ estimates on a big increase in sales of servers built to handle artificial intelligence work.
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CrowdStrike Holdings Inc. delivered first-quarter earnings that beat Wall Street expectations despite a pullback in spending that has challenged its cybersecurity rivals.
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Alphabet Inc. named Anat Ashkenazi as its new chief financial officer, replacing Ruth Porat who announced last year that she would retire from the post.
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Discount retailer Dollar Tree Inc. is considering options for its troubled Family Dollar business, including a possible sale or spinoff.
This week’s highlights:
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Eurozone retail sales, ECB rate decision, Thursday
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Initial US jobless claims, trade, Thursday
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China trade, Forex stocks, Friday
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Eurozone GDP, Friday
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US unemployment rate, non-farm payrolls, Friday
Some of the main movements in the markets:
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