Since January 3, within a one-month span, the Dow Jones Industrial Average has recovered from 22,682 points to 25,102 points, by more than 10 percent.
It has been a stunning 30 days for the Dow Jones, which was at risk of entering a bear market after falling by 19 percent from its all-time high.
The short-term recovery of the Dow was mainly attributed to the Federal Reserve rate, which is expected to remain stable in the range of 2.25 percent to 2.5 percent.
But, another key factor may have largely affected the sentiment around the U.S. stock market throughout the past 48 hours.
Jobs, Jobs, Jobs: U.S. Shutdown Has Minimal Impact as Dow Jones Recovers Off of It
A Reuters report revealed that contrary to the expectations of investors, the shutdown of the U.S. government last month had minimal impact on jobs.
Throughout the 34-day period, more than 800,000 federal workers missed two paychecks, which account for around 0.5 percent of the workforce of the U.S.
Although the unemployment rate of the U.S. increased to 4 percent as a result of the shutdown, the Labor Department said it had no “discernible” effect on job growth.
Most major industries recorded a rise in job growth from December to January.
- Employment in construction rose by 52,000 in January
- Employment in manufacturing increased by 13,000 in January, following a 20,000 increase in December
- 8,000 federal workers were hired by the government in January
Job growth rose In industries including healthcare, finance, and transportation as well, eliminating the concerns of investors that the shutdown could slow down the recovery of the U.S. Stock market.
With job growth strengthening and increasing at a gradual pace and the Federal Reserve vowing to remain patient on rate hikes, the stock market is expected to sustain its momentum throughout the short-term.
Another Variable: U.S.-China Trade War, Trump Remains Positive
Earlier this week, the U.S. government filed more than 20 charges against Chinese telecom and electronics giant Huawei, fueling the tension between the U.S. and China.
The South China Morning Post reported that the trade talks had been overshadowed by the Huawei indictments, which analysts foresee could lead to a substantial fine for the Chinese company.
A professor at the National University of Singapore David De Cremer said:
“It is likely that Huawei will receive a very big fine. Such a decision would communicate to allies of the U.S. to join in this battle and push Huawei out of their markets.”
If the indictments lead to an export ban on Huawei, local analysts in China said that it could have a major impact on both Huawei and its partners.
Crucially, it could heavily affect the “Made in China 2025” roadmap set forth by the government of China that may alter the outcome of the trade talks.
Jia Mo, a Shanghai-based analyst, told SCMP:
“Imposing an export ban on Huawei will inevitably have a tremendous impact, whether for Huawei or for its business partners in the US.”
Analysts emphasized that the Huawei case has added another uncertainty to the trade discussions between the U.S. and China.
IDC Asia-Pacific vice president Simon Piff added:
“Whether [the Huawei indictments] are due to security concerns, business concerns or political concerns are now so blurred it is difficult to tell what the outcome would be.”
China’s top trade negotiators are in the U.S. meeting with our representatives. Meetings are going well with good intent and spirit on both sides. China does not want an increase in Tariffs and feels they will do much better if they make a deal. They are correct. I will be……
— Donald J. Trump (@realDonaldTrump) January 31, 2019
But, U.S. President Donald Trump has said that the meeting is going well with good intent from both sides despite the Huawei dispute, which could serve as a catalyst for the short-term growth of the U.S. economy.
If the job growth is sustained throughout the first quarter of 2019 and the Federal Reserve maintains its rate in the 2.25 to 2.5 percent range, the U.S. stock market could aim for a full-fledged recovery from its December downturn.
Author: Joseph Young
Image Credit: Featured Image from Shutterstock