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Fed swaps now show traders see an only 25% chance of another hike by January, and have fully priced in a cut by June — instead of July. The US service sector expanded at the weakest pace in five months, job growth moderated and the unemployment rate climbed to 3.9%. Nonfarm payrolls increased 150,000 last month following a downwardly revised 297,000 in September. Wage growth slowed.

“The US economy showed its first cracks, but markets decided not to care,” said Florian Ielpo at Lombard Odier Asset Management in Switzerland. “For now, all is well — and ‘bull is cool’ looks liberating for a considerable number of investors, be it on the equity or on the bonds’ side.”

To George Mateyo, chief investment officer at Key Private Bank, the latest trends only validate the Fed’s decision to pause this week.

“They also underline a ‘not too hot/not too cold’ backdrop which will be welcomed news by investors who, up until recently, had been concerned about things overheating,” he added.

Looking forward, October’s pace of slower net hiring should give Fed officials room to maintain their pause as they await further progress on inflation, according to Russell Price, chief economist at Ameriprise, who currently believes the the Fed is done raising rates.

The US central bank’s policy-setting Federal Open Market Committee voted Wednesday to hold interest rates at a 22-year high for a second straight meeting. Fed Chair Jerome Powell told reporters in a press briefing that it’s an open question whether the central bank would need to hike again, and that it’s “proceeding carefully,” an assessment that’s often suggested a reluctance to raise rates in the near term.

Fed Bank of Richmond President Thomas Barkin said Friday that moderating employment last month was a welcome indication of a normalization of the labor market but that his view on whether to raise rates again will depend more on inflation reports.

Sahm Rule

The rise in unemployment to 3.9% means joblessness is on the verge of triggering the so-called Sahm Rule, which has proven to be reliable predictor of recessions. The rule, hatched by former Fed economist and now Bloomberg columnist Claudia Sahm, posits the start of a recession when the three-month moving average of the unemployment rate rises by a half-percentage point or more relative to its low during the previous 12 months.

Helped by a growing sense that the Fed’s aggressive rate-hiking regime may be over, the S&P 500 has ascended rapidly this week, largely  Meanwhile, US companies have been putting on a better-than-expected show for their third-quarter results so far this season, further boosting investor confidence.

Technical factors no longer stand in the way of a year-end rally in the S&P 500, according to Bank of America Corp.’s Michael Hartnett.

The bank’s in-house sentiment gauge, the Bull & Bear Indicator, is flashing a contrarian buy signal for a third straight week amid poor equity market breadth — a reference to the number of stocks rising — and large outflows from high-yield and emerging-market bonds, the strategist wrote in a note. The indicator has slid to 1.4, below the 2 level that BofA says implies a buy signal.

Better Entry Point

BofA’s Savita Subramanian says the S&P 500 offers a better entry point today relative to its July peak and that “the probability of a positive surprise in higher beta stocks is high,” while noting that the frequency of clients asking whether they should wait to buy equities has increased.

“Extreme fear can be just as costly as greed,” she wrote.

Meantime, bonds are looking attractive and set to beat cash over the next year as inflation cools and central banks end policy tightening, according to Goldman Sachs Group Inc.’s head of asset allocation strategy.

“Bonds are starting to offer an attractive entry point,” said Christian Mueller-Glissmann. “Central banks are very close or already at the end of their rate-hiking cycle. We also recognize the pressure that comes from rising long-dated bond yields on the economy. Those factors set investors up nicely for a much better starting point for buying bonds.”

Corporate Highlights:

• Apple Inc., which is trying to reverse several successive quarters of revenue decline, reported its lowest revenue from the greater China region since mid-2022.
• Fortinet Inc. cut its annual guidance a second time and projecting that fourth-quarter billings and revenue will fall short of Wall Street’s expectations.
• Coinbase Global Inc.’s third-quarter loss narrowed and revenue increased more than forecast as the largest US crypto exchange sought to weather an industrywide decline in trading activity.
• DraftKings Inc., the online sportsbook, reported third-quarter sales and monthly unique players that beat consensus estimates.
• Block Inc., the payments giant run by Jack Dorsey, again boosted its forecast for adjusted profit for the year as customers increasingly turn to its popular Cash App.
• Warren Buffett’s Berkshire Hathaway is poised to show that persistently high interest rates have helped the conglomerate more than they hindered it.
• A.P. Moller-Maersk A/S, a bellwether for global trade, fell after saying it’s cutting at least 10,000 jobs to shield its profitability in a shipping market that is set to remain weak until about 2026.
• Nio Inc. said it is cutting jobs and and may spin off non-core businesses to reduce costs and improve efficiency, as the Chinese electric-vehicle maker falls way short of its sales targets and continues to post losses.
• The United Auto Workers’ president says there could be a nasty fight ahead to organize workers at Ford Motor Co.’s jointly-owned electric battery plants, after the company declined to join its competitors in agreeing to ease the unionization process.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.8% as of 11:14 a.m. New York time
• The Nasdaq 100 rose 0.7%
• The Dow Jones Industrial Average rose 0.5%
• The Stoxx Europe 600 rose 0.2%
• The MSCI World index rose 1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.8%
• The euro rose 1% to $1.0724
• The British pound rose 1.2% to $1.2351
• The Japanese yen rose 0.7% to 149.44 per dollar

Cryptocurrencies

• Bitcoin fell 0.4% to $34,774.55
• Ether rose 0.1% to $1,806.88

Bonds

• The yield on 10-year Treasuries declined 14 basis points to 4.52%
• Germany’s 10-year yield declined seven basis points to 2.65%
• Britain’s 10-year yield declined nine basis points to 4.29%

Commodities

• West Texas Intermediate crude fell 0.8% to $81.81 a barrel
• Spot gold rose 0.5% to $1,995.44 an ounce