Stocks end the day higher even as blowout jobs report pushes some Fed officials to consider another rate hike

The US job market is on fire.

And yet... Americans continue to pooh-pooh the economy. In a February CNN poll, nearly half of people surveyed said they believe the economy remains in a recession. This past week, a Wall Street Journal poll showed Americans' approval rating of the US economy was underwater by a stunning 31 percentage points. That's a big risk to President Joe Biden's reelection campaign.

The reason: stubborn inflation. Although price hikes have subsided dramatically over the past year, costs still sting. Gas prices, emblazoned on signs all around towns and cities and highways, are on the rise again, with a national average marching toward $3.60, the highest in six months. Grocery prices have remained frustratingly high, and dining out still far outpaces overall inflation, even as the surge in overall food inflation has subsided.

In the Journal's poll, 74% of respondents said inflation progress was headed in the wrong direction over the past year.

That's not a problem that the Fed can easily solve. Historically high interest rates have punished the economy, sending mortgage rates near 7% and practically freezing the housing market. Inflation has come down to near-normal levels from a four-decade high.

But Americans keep spending and employers keep hiring, and costs are not going to come down, even as inflation — the pace of price increases — slows. So, every time folks go shopping and see the alarmingly big receipt, they'll get a reminder of frustrating inflation, souring their view of what's a remarkably strong US economy.

President Joe Biden touted March’s jobs report Friday, saying it “marks a milestone in America’s comeback.”

“Today’s report marks a milestone in America’s comeback," Biden said in a statement released by the White House Friday. "Three years ago, I inherited an economy on the brink. With today’s report of 303,000 new jobs in March, we have passed the milestone of 15 million jobs created since I took office. That’s 15 million more people who have the dignity and respect that comes with a paycheck."

The economy remains a critical issue for the president as he seeks reelection. In his State of the Union address, the president vowed to raise taxes on corporations and lower everyday costs, including junk fees and prescription drug prices.

The US economy added a whopping 303,000 jobs in March, continuing the labor market's scorching-hot streak. Here's what Wall Street has to say.

Job growth in March was driven by industries such as health care, which added 72,300 jobs; government (+71,000 jobs); leisure and hospitality (+49,000 jobs); and construction (+39,000 jobs).

March's jobs report, which showed that employers hired a whopping 303,000 new workers, bolsters the Federal Reserve's argument for being patient when it comes to cutting interest rates.

At the same time, inflation hasn't been budging as much as central bankers would like. On that front though, the jobs report provided a positive development: slower wage growth. On a monthly basis, average hourly earnings increased by 0.3% to $34.69. That was a slight bump from February. But on an annual basis, the pace of wage growth slowed to 4.1% from 4.3% in February.

Fed officials pay close attention to this because faster wage growth can usher in higher overall prices since it means consumers have more money to spend.

Still, it likely won't be enough to convince the Fed that it's appropriate to lower rates from their current 23-year high. The concern remains that it would invite more inflation and, since the labor market continues to remain strong, they're unlikely to want to chance it.

Stock futures were higher Friday morning, even after a red-hot jobs report that showed the US economy added 303,000 positions in March, nearly 100,000 more than analysts had expected. The unemployment rate fell to 3.8% from 3.9%.

While low unemployment signals a resilient economy, traders worry that strong economic data could spur the Federal Reserve to keep interest rates higher for longer. A robust labor market means that consumers have more spending power. That could add to inflation.

Friday morning's rebound comes after a disastrous week for Wall Street. The Dow is currently tracking toward its worst week in over a year.

"The stock market rose 10% during the first quarter, which is an extremely impressive gain, and it's not surprising to see stock market turbulence after such a gain," said Glen Smith, chief investment officer at GDS Wealth Management.

Job growth remains plentiful at American businesses.

Employers added 303,000 jobs in March and the unemployment rate fell to 3.8%, according to the Bureau of Labor Statistics.

The total far surpasses economists’ expectations of 205,000, according to FactSet consensus estimates. The jobless rate had been projected to fall from 3.9% to 3.8%.

US stock futures were on the rise Friday morning, but it's been a bad week for markets in general.

The Dow plunged more than 500 points on Thursday, notching its worst day in more than a year and its fourth losing session in a row. All three major indexes are now tracking toward a negative week.

As of Thursday afternoon, the blue-chip Dow is down about 3% for the week, while the S&P 500 and tech-heavy Nasdaq Composite are about 2% lower.

The S&P 500 is currently on course for its worst weekly performance since October.

A catalyst for the selloff has been rising tensions in the Middle East. Oil prices spiked by almost 3% yesterday on news that Israel was preparing for a possible attack by Iran. That, in turn, stoked fears of inflation.

A number of Federal Reserve officials also made hawkish statements this week. Minneapolis Fed President Kashkari said that if “we continue to see inflation move sideways, then that would make me question whether we needed to do those rate cuts at all.”

Earnings season kicks off next week with quarterly updates from Delta Air Lines, Citigroup, BlackRock, JPMorgan Chase and Wells Fargo. Investors are hoping it will help bring back this year’s banner rally.

Analysts polled by FactSet expect first-quarter earnings of S&P 500 companies to grow 3.1% from the prior year. That would mark the third straight quarter of earnings growth. Full-year profits are expected to swell about 10.7%.

All three major US indexes have notched repeated record highs this year after a gangbusters 2023, despite hot inflation data and hawkish Federal Reserve chatter forcing Wall Street to pull back its expectations for six interest rate cuts this year to three.

Some traders credit strong fourth-quarter corporate earnings and the resilient economy for fueling optimism that the US will avoid a recession and in turn the market’s continued surge.

But stocks began tumbling just after notching their best start to the year since 2019. The S&P 500 has fallen 2% this week after hot inflation data and warnings from Fed officials raised concerns that long-awaited rate cuts could come later than expected. Elevated bond yields and spiking oil prices are also weighing on stocks.

The first-quarter earnings season could get the stock rally chugging along again, some investors say.

Read more here.