If investors hoped Thursday's U.S. jobs report would give them clarity, they were probably disappointed.
The report, one of the most-watched pieces of news in financial markets, painted a mixed picture for U.S. employment. And it left a key question hanging over stocks and bonds: When and how quickly will the Federal Reserve raise interest rates?
U.S. employers added a solid 223,000 jobs in June, and the unemployment rate fell to a seven-year low of 5.3 percent. But wage growth stalled, suggesting that spending by Americans is unlikely to rise.
Stocks ended the day slightly lower and investors drove bond prices up.
Investors and analysts have been speculating for months that the Fed will increase its benchmark interest rate later this year as jobs and the economy keep improving. The Fed has kept that rate at an historic low since 2008 to help the economy heal from the financial crisis and a deep recession.
But the prospect of higher rates is unsettling for investors. Both stocks and bonds have rallied the last six years, helped by the Fed's ultra-low rates. The stock market, even after the recent turbulence, remains close to all-time highs. The low rates and years of strong corporate earnings have combined to keep investors buying up shares. Steady but tepid economic growth — along with tame inflation — have supported the bond market.
Here's what three experts think the jobs report means for rates and markets.
CHRIS RUPKEY, chief financial economist for MUFG Union Bank:
Rupkey observed that traders bought government bonds immediately after the report came out, pushing the 10-year Treasury yield down to 2.40 percent from 2.45 percent. That was a clear indication that bond investors saw little reason to be optimistic about the economy. It's a response he considers mistaken.
It was as if traders were looking for bad news ahead of the Fourth of July.
"Go watch some fireworks this weekend, relax and come back next week with a better frame of mind," he says.
Take the fall in the unemployment rate to 5.3 percent from 5.5 percent. The rate declined mainly because many people out of work gave up on their job searches and were no longer counted as unemployed, which may reflect rising discouragement.
Rupkey argues that the smaller labor force is a reflection of the aging workforce and retiring baby boomers.
"This is not a secret sign that the labor market isn't fully healed," he says.
Rupkey says that the Fed is still very likely to raise its rates in September.
"Bet on it. The economy is better than the market thinks."
JIM RUSSELL, a portfolio manager at wealth manager Bahl & Gaynor Investment Counsel:
"The Fed probably feels that today is maybe a two-steps-forward, one-step-back kind of a number," Russell says.
The number was slightly weaker than economists had expected, but it continued a trend of the U.S. adding more than 200,000 jobs a month, a healthy clip. That gives Fed policy makers a "green light" to start raising interest rates later this year, Russell says. An increase could come in September or December.
Despite the improvement in hiring, growth will likely remain muted, as improvements in the U.S. are offset by weakness elsewhere, notably China. That means rate increases will be kept to a minimum.
"Lower for longer is probably the theme that we are most comfortable with," Russel says. "Low rates, low growth and low inflation."
The tepid growth will do little to help the stock market, which is likely to keep moving sideways, he says.
The Standard & Poor's 500 stock index has risen 0.9 percent in 2015 after notching triple-digit increases in each of the prior three years. The Dow Jones industrial average, meanwhile, is down 0.5 percent.
The bond market is more vulnerable if the Fed starts to raise interest rates, Russell says.
JIM PAULSEN, chief investment strategist at Wells Capital Management:
Paulsen also thinks the Fed is likely to raise rates this year, as long as employers keep adding jobs at the current rate.
For investors, he says, the big question is not just when the Fed will raise rates, but by how much. As long as that question remains unanswered, he thinks the stock market is likely to have a hard time sustaining a run higher.
"It creates a lot of anxiety. That may be a large part of why we're flat year to date," Paulsen says.
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