Today’s favourable reaction in the US stock market to April's softer-than-expected Employment Report has coincided with renewed hopes of interest rate cuts, judging by the initial plunge in the 2-year Treasury yield towards 4.7%. (See Chart 1.) Admittedly, weaker growth in employment isn’t necessarily favourable for equities. But, in our view, the positive reaction in the S&P 500 makes sense given the news that the labour market is only cooling slowly from being overheated, and that it’s being accompanied by slower growth in hourly earnings.
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