The case for an end to the Federal Reserve's interest rate hikes continues to build for investors.
On Friday, the October jobs report showed 150,000 jobs were added to the US economy while the unemployment rate hit its highest level since January 2022.
The labor market slowdown is a welcome sign for the Federal Reserve, which has noted it is "likely" that more softening in the labor market will be needed to keep inflation on its downward trajectory.
The jobs report adds to the growing reasons investors see the Fed stopping its rate hiking campaign. After the central bank held rates steady on Wednesday, investors largely interpreted Fed Chair Jerome Powell's commentary to indicate the Fed won't be hiking again in 2023.
“The overall weakening in employment demand and wage growth supports our view that the Fed is done raising rates for this cycle," Nationwide chief economist Kathy Bostjancic wrote in a note to clients on Friday.
Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards
Markets continued to price in that narrative on Friday with both the S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) rising as much 1%, while Treasury yields fell. The 10-year Treasury yield, which had recently hit 16-year highs and been considered a headwind to equities, fell to 4.5% on Friday, its lowest level since Sept. 22.
Meanwhile, investor bets on a Fed pause increased, too. As of Friday morning, markets were pricing in a roughly 90% chance the Fed doesn't raise rates at its next meeting, per the CME FedWatch Tool, up about 10 percentage points from the day prior. A month ago, markets had priced in just a 53% chance the Fed wouldn't hike again.
"Incoming macro developments have been favorable in a way that, in our view, sets the stage for stocks to gain in the near-term," Fundstrat head of research Tom Lee wrote in a research note on Friday. "So far, it is a 'baby rally' but this could turn into a larger rally."
Despite the rally in markets, the Fed hasn't made a clear decision on what's next for rate hikes and hasn't discussed cutting rates yet, per Powell. The Fed chair highlighted Friday's labor report as one of several key data points, including another labor update and two inflation prints, that will come before the December meeting.
"That’s the question we’re asking, is should we hike more?" Powell said on Wednesday.
Three trading days in, the market says no.
Josh Schafer is a reporter for Yahoo Finance.
Click here for the latest economic news and indicators to help inform your investing decisions.
Read the latest financial and business news from Yahoo Finance