US equity indexes experienced notable gains this week, buoyed by a robust increase in nonfarm payrolls that offset growing tensions in the Middle East. The Dow Jones Industrial Average reached a new all-time high, closing at 42,352.75 on Friday, rising from 42,313 just a week prior. The Nasdaq Composite also saw an increase, closing at 18,137.85, up from 18,119.59, while the S&P 500 climbed to 5,751.07 from 5,738.17.
The sectors that led the market upward included energy and communication services, while materials was the weakest performer. September's nonfarm payroll figures showed an expansion of 254,000 jobs, significantly exceeding the forecast of 150,000. Moreover, revisions to previously reported numbers showed an increase of 17,000 jobs for August and 55,000 for July.
The unemployment rate remained stable at 4.1%, consistent with expectations, while average hourly earnings also grew more than anticipated, indicating positive trends in the labor market. As a result of this favorable jobs report, market expectations for a 25 basis-point cut in the interest rates surged dramatically, jumping from 68% to 95% according to the CME Group's FedWatch Tool.
Only 5% of participants now foresee rates being left unchanged, compared to a 0% probability just a day earlier. The new CME data suggests that the potential for a 50 basis-point reduction on November 7 has been eliminated, reversing the earlier 32% probability. On the geopolitical front, Israel's military operations in southern Lebanon, targeting the Iran-backed group Hezbollah, escalated tensions further as Iran launched its most significant attack on Israel to date on Tuesday.
Reports from CNN on Friday, referencing the Lebanese health ministry, indicated that Israel's unprecedented airstrike campaign has led to over 1,400 fatalities. When asked whether the US would support a strike by Israel on Iranian oil facilities, President Joe Biden indicated on Thursday that discussions on the matter were ongoing.
Prior to this, he had reportedly expressed that he would not endorse a strike on Iran's nuclear facilities. According to RBC Capital Markets, the Kharg Island oil export facilities are crucial to Iran's oil sector, acting as its primary hub for oil shipments..