Market week: Strong U.S. job creation lifts markets

March surge reverses February weakness

Buoyed by a better-than-expected U.S. job creation report for March, the major North American stock market indices logged strong gains for the week, with both the S&P 500 Composite Index and the Nasdaq Composite Index ahead over 2%, putting the Nasdaq’s year-to-date gain now at nearly 20%. Toronto’s benchmark S&P/TSX Composite Index benefitted from a surge in energy issues as crude oil gained over 5% on the week, while financials maintained strength, with the S&P/TSX Capped Financial Index gaining 2.4% on the week.

The U.S. Bureau of Labor Statistics reported Friday that the economy created 196,000 new jobs in March, substantially exceeding street estimates of around 175,000. The powerful gain reverses an unusually weak report in February, easing some of anxiety in the first two months of the year that the U.S. economy may have been headed for a slowdown.

The U.S. unemployment rate held at 3.8%, its lowest level in nearly 50 years, indicating a full-employment economy, while annualized wage growth eased a couple of points, to 3.2% from 3.4% in February, still the fastest pace in about 10 years. All this points to still-strong underlying economic growth, and allays investor concerns that the Federal Reserve might have contemplated an interest rate cut instead of a hike later this year.

In Canada, the economy saw a modest decline in jobs, losing about 7,200 in March, after six months of strong job gains that saw about 300,000 new jobs added, with the unemployment rate remaining at a very comfortable 5.8%. Wage growth also ticked up in March, rising at an annual rate of 2.3%, compared with 2.2% in February. As in the U.S., the overall positive Canadian jobs data, despite the weakness in March, generally allayed investor concerns about a possible rate cut by the Bank of Canada. Investors were further mollified by comments from Bank of Canada Governor Stephen Poloz who indicated this past week that Canada would emerge from this period of softer economic growth but that rates would continue slightly below the neutral range.

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