Major global stock indices moved higher on Friday after weaker U.S. employment data reduced expectations for another Federal Reserve rate increase in October, although weekly performance remained uneven across markets.
The S&P 500 rose 0.7% on Oct. 2 to 7,722.72, leaving the U.S. benchmark less than 1% below its record. The Nasdaq Composite gained 1.2% to 27,190.86 and the Dow Jones Industrial Average advanced 0.5% to 51,176.96. Smaller U.S. companies also moved higher, with the Russell 2000 adding 0.9%.
The move followed September employment data showing the U.S. economy added 29,000 jobs, well below the 90,000 expected by economists surveyed by Reuters. August payroll growth was revised down to 133,000, while unemployment increased to 4.2%. Traders responded by cutting expectations for an October Fed rate increase.
European equities joined the rebound after a difficult start to October. The STOXX Europe 600 gained about 0.8% Friday after falling to a three-month low during the previous session. Technology stocks led much of the recovery as government bond yields eased from recent highs and oil prices declined.
The improvement didn’t erase the week’s losses. Britain’s FTSE 100 rose 0.32% Friday to 10,461.95 but finished the week down 2.2%, its largest weekly decline since April. The S&P 500 lost 0.27% over the week and the Dow fell 1.26%, while the Nasdaq gained 0.45%.
MSCI’s global equity index increased 0.6% to 1,140.27 on Friday, providing a broader measure of the recovery across markets. Yet a single world index number doesn’t show how differently individual markets are behaving underneath.
Why global indices are producing different returns
Comparing the S&P 500, Nasdaq, FTSE 100, DAX or other benchmarks only by their headline percentage moves misses substantial differences in how those indices are built.
Most major benchmarks use market capitalization, giving larger companies greater influence over daily movements. The Dow Jones Industrial Average and Nikkei 225 instead weight constituents by share price, while equal-weight indices assign the same influence to every company.
Those structures mean two benchmarks covering broadly similar markets don’t necessarily respond to the same economic news in the same way.
Sector exposure creates another difference. The S&P 500 and Nasdaq carry substantial technology exposure, while the FTSE 100 has larger weights in energy, mining, banks and consumer companies. Germany’s DAX has greater exposure to industrial and export businesses, while France’s CAC 40 has a larger presence from luxury and aerospace companies.
U.S. technology stocks responded strongly as weaker employment data reduced immediate rate concerns, helping the Nasdaq outperform the Dow. In Europe, technology shares also led gains in the STOXX 600, while banking stocks were broadly flat following a difficult week.
Currency also changes the result for international investors. A benchmark gain measured in its domestic currency doesn’t produce the same return for an investor whose portfolio is denominated in dollars, euros or pounds. Exchange-rate movements can reduce, erase or reverse the apparent advantage of one index over another.
Bond yields remain a problem for equities
Friday’s equity rebound didn’t end the pressure coming from government bond markets. U.S. Treasury yields initially declined after the employment report but later moved higher again, extending a selloff that has pushed global borrowing costs to levels not seen in decades.
The U.S. 10-year Treasury yield had reached 5.34% on the first trading day of October, its highest level in 24 years. Higher yields increase financing costs and raise the returns available from bonds, changing the relative valuation investors are willing to pay for equities.
Europe faces its own rate pressures. Eurozone inflation increased more than expected in September, and markets were pricing a high probability of another European Central Bank increase by December. France has faced additional pressure from fiscal concerns, with the gap between French and German borrowing costs widening sharply.
For investors comparing world indices after Friday’s rally, the starting headline is straightforward: global equities rose as weak U.S. payroll data reduced near-term Fed concerns.
The underlying picture is less uniform. U.S. technology shares led the rebound, British equities remained down sharply for the week, European markets were recovering from a bond-driven selloff, and currency and sector exposure continued to produce different returns across benchmarks.
