The U.S. stock market rose on Wednesday, recovering from a three-day slump, as investors shrugged off a disappointing private payrolls report and focused on the prospects of more fiscal stimulus and lower interest rates. The Dow Jones Industrial Average gained 286 points, or 0.9%, to close at 34,226, while the S&P 500 added 0.8% and the Nasdaq Composite advanced 0.7%.
ADP report shows weak hiring in September
The main catalyst for the market rally was the release of the ADP National Employment Report, which showed that private employers added only 89,000 jobs in September, far below the consensus estimate of 160,000 and the lowest level since February. The report also revised down the August figure from 200,000 to 180,000.
The ADP report is seen as a precursor to the official nonfarm payrolls report from the Labor Department, which will be released on Friday and is expected to show a gain of 500,000 jobs in September. However, some analysts cautioned that the ADP report is not a reliable indicator of the official data, as it has often missed the mark in the past.
The weak hiring data suggested that the U.S. labor market recovery is losing steam amid the resurgence of COVID-19 cases and supply chain disruptions. It also raised concerns about the impact of the expiration of federal unemployment benefits and the looming debt ceiling deadline on consumer spending and economic growth.
Investors hope for more stimulus and lower rates
However, instead of panicking over the dismal jobs report, investors saw it as a positive sign for more fiscal stimulus and lower interest rates. They hoped that the Biden administration and Congress would reach a deal on the $3.5 trillion budget reconciliation package, which includes spending on infrastructure, social programs, climate change, and health care. They also expected that the Federal Reserve would delay its plans to taper its monthly bond purchases and keep interest rates near zero for longer.
Some analysts said that the market reaction was rational, as a weaker labor market would mean more support from the government and the central bank. They argued that the U.S. economy still had strong fundamentals, such as robust consumer demand, corporate earnings, and household savings. They also pointed out that the stock market had already priced in some of the risks from COVID-19 variants, inflation pressures, and geopolitical tensions.
Sector performance and stock movers
Among the 11 major sectors of the S&P 500, nine ended in positive territory, with energy leading the way with a 3.2% gain. Oil prices rose to their highest level since 2014, as OPEC+ agreed to stick to its plan to gradually increase production amid strong demand and tight supply. Chevron and Exxon Mobil were among the top performers in the Dow, rising 2.9% and 2.6%, respectively.
Financials also outperformed, gaining 1.6%, as bank stocks benefited from higher bond yields and lower credit costs. The yield on the 10-year Treasury note rose to 1.54%, after falling to 1.48% on Tuesday. Bank of America, JPMorgan Chase, and Citigroup all rose more than 2%.
Technology stocks lagged behind, as investors rotated out of growth-oriented names and into value-oriented ones. Apple fell 1%, while Microsoft edged up 0.2%. Tesla dropped 2.5%, after CEO Elon Musk testified in a civil trial over his role in the company’s acquisition of SolarCity in 2016.
General Motors gained 2.4%, after announcing that it had secured a new $6 billion line of credit to prepare for a possible monthslong strike by the United Auto Workers union. The strike has already cost GM $200 million in lost production in the third quarter.