Investors reacted positively to the Federal Reserve showing a slightly more dovish stance on monetary policy and an uptick in the unemployment rate, resulting in back-to-back weekly gains for most markets. The softer April jobs report, including the slight increase in unemployment, was well received by markets because it plays into hopes for a “Goldilocks” economic outlook in which the labor market and growth remain resilient but without overheating and stoking inflation. For the week, the S&P 500 was up 0.56%, the Dow Jones Industrial Average was up 1.14%, and the NASDAQ gained 1.44%. The S&P Mid-cap Index and Small cap Index were up 1.19% and 1.39%, respectively, and the Russell 2000 small-cap index was up 1.68%. The MSCI AC World ex USA was up 1.49% for the week.

Last week, the Federal Reserve, as expected, held rates steady at 5.25% - 5.00%. It has remained at that rate since July 2023, when the Fed last raised interest rates to the highest level in more than two decades. One thing that did change was the committee voted to reduce the rate at which they are letting maturing Treasuries and mortgage-backed securities roll off the central bank’s balance sheet each month and not be reinvested. Back in June of 2022, “quantitative tightening” began with the Fed allowing up to $95 billion a month in proceeds to mature and not reinvest them. Since then, the central balance sheet has come down about $1.5 trillion dollars. The new plan will allow up to $25 billion of Treasuries per month to roll off, reducing the annual reduction from $720 billion to $300 billion. The effect can be seen as a slight easing of Monetary policy without reducing interest rates.

Friday’s non-farm payroll number for April came in 60K below expectations at 175K, and well below March’s 315K. That moved the unemployment rate up slightly to 3.9%. Earlier in the week, April ADP private payrolls came in higher than expected at 192K and March’s numbers were revised higher to 208K. Again, most of the new jobs were in the service industry, with leisure/hospitality and trade/transportation/utilities all seeing strong gains. Large companies of 500+ employees had the most growth. Also, for April, pay gains for job-stayers was up 5% year-over-year while the pace of job-changers slowed. The JOLTS (Job Openings and Labor Turnover Survey) came in lower than expected at 8,488K versus the consensus of 8,665K. There are now 1.3 job openings per unemployed worker in the U.S., which is still a historically tight level but it’s down notably from a peak of 2.0 in 2022.

First quarter earnings season continued last week with two of the magnificent seven stocks getting a lot of attention. Both Apple (AAPL) and Amazon (AMZN) reported positive news. AMZN Q1 results showed a beat from Amazon Web Services, but enthusiasm was curbed by its sales outlook. Management signaled it would go all in on AI. AAPL reported better than expected fiscal second quarter results and giving better than feared Q3 revenue guidance. Stock buybacks were of particular focus as Deutsche Bank noted S&P 500 buyback announcements jumped to over $130B last week, for a Q1 earnings season total of $262B. Apple (AAPL) unveiled a record $110B buyback plus a dividend boost.

This week is much quieter than last week for economic releases and corporate earnings season will begin to wind down as well. Thursday we’ll get initial and continuing jobless claims to see if a softer trend continues, increasing the possibility of the Fed lowering interest rates sooner rather than later.