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U.S. stocks on Friday ended with solid gains, extending their strong start to June, after labor market data strengthened bets for a pause in rate hikes at the Federal Reserve’s meeting later this month.
Also aiding sentiment was the debt ceiling bill crossing the finish line, with U.S. President Biden expected to sign it into law today.
The Dow (DJI) led the three major averages, gaining 2.12% to close at 33,762.76 points. It was the blue-chip index’s best intraday performance since early January.
The S&P 500 (SP500) hit a multi-month high, adding 1.45% to end at 4,282.37 points. There were some worries about the sustainability of the benchmark index’s rally amid narrow participation and some technical headwinds.
The tech-heavy Nasdaq Composite (COMP.IND) advanced 1.07% to settle at 13,240.77 points, helped by a surge in shares of Lululemon Athletica (LULU) and Zscaler (ZS) after strong quarterly results.
All 11 S&P sectors ended trading in the green, led by a more than 3% jump in Materials.
For the week, the Nasdaq rose 2.04%, the Dow jumped 2.02% and the S&P improved 1.83%.
The latest nonfarm payrolls report gave some conflicting signals. On the one hand, the headline number came in significantly higher than expectations. On the other hand, the unemployment rate ticked up to 3.7% from a prior reading of 3.4%.
“This is the strangest employment report for some time,” Pantheon Macro’s Ian Shepherdson said. “The payroll surge is impossible to square with leading indicators like NFIB hiring intentions or coincident indicators like the Homebase data, though ADP was very close, as it was in April, after a run of big – some very big – misses.”
The report gives some breathing room for the Fed to skip a rate hike at their monetary policy committee meeting later this month. At the same time, the elevated headline number continues to point to a highly resilient labor market. Central bank speakers recently have hinted that a rate hike can be overlooked at the upcoming meeting.
According to the CME FedWatch tool, markets are now pricing in a rate hike at the Fed’s July meeting instead of this month. The odds of a pause at the latter is about 72%, while the odds of a hike at the former is around 52%.
Treasury yields were higher on Friday. The longer-end 10-year yield (US10Y) was up 8 basis points to 3.69% while the more rate-sensitive 2-year yield (US2Y) was up 16 basis points to 4.50%. The dollar index (DXY) was higher by 0.46% to 104.04.
“Stocks reacted positively to the May jobs report, especially in the more cyclical parts of the market led by materials, energy, industrials, and financials,” Michael Kramer, investing group leader of Mott Capital Management, told Seeking Alpha.
“Additionally, rates rose sharply on the day, as the dollar strengthened as signs continued to point to a much stronger US economy, as it becomes more evident that the Fed will likely have to continue to raise rates further, even if that rate hike doesn’t come at the June meeting,” Kramer added.
Meanwhile, the Senate passed the debt ceiling bill late Thursday with a 63-36 margin. The legislation is anticipated to be signed into law by President Biden, allowing the government to avert its first ever default.
Among active stocks, telecom names took a beating after a report that retail and tech giant Amazon (AMZN) was mulling offering mobile service to its Prime customers. T-Mobile US (TMUS), AT&T (T) and Verizon (VZ) ended among the top percentage losers on the S&P 500. DISH Network (DISH) was an outlier, surging more than 14%.
