Stocks Close Sharply Higher In Reaction To Upbeat Jobs Data - U.S. Commentary

(RTTNews) - After trending lower over the past several sessions, stocks showed a substantial move back to the upside during trading on Friday. The markets benefited from a positive reaction to much better than expected employment data.

The major averages held on to strong gains going into the close, ending the day firmly positive. The Dow soared 208.64 points or 1.2 percent to 17,009.69, the Nasdaq jumped 45.43 point or 1 percent to 4,475.62 and the S&P 500 surged up 21.73 points or 1.1 percent to 1,967.90.

Despite the rally on the day, the major averages all moved lower for the week. The Dow fell by 0.6 percent, while the Nasdaq and the S&P 500 both dropped by 0.8 percent.

The strength on Wall Street came following the release of a report from the Labor Department showing much stronger than expected job growth in the month of September.

The report said non-farm payroll employment jumped by 248,000 jobs in September compared to economist estimates for an increase of about 215,000 jobs.

Partly reflecting the stronger than expected job growth, the unemployment rate fell to 5.9 percent in September from 6.1 percent in August, hitting its lowest level in over six years.

However, the drop by the unemployment rate was also partly due to another decrease in the size of the labor force, which fell by 97,000.

The Labor Department said the labor force participation rate edged down to 62.7 percent in September from 62.8 in August, hitting its lowest level since February of 1978.

Paul Dales, Senior U.S. Economist at Capital Economics, said, "The chances of the cyclical rebound in the participation rate that the Fed expects appear to be receding."

"At some point, the Fed may have to conclude that the unemployment rate is a reasonably accurate measure of the amount of slack," he added. "That said, it's odd that the tighter labor market has yet to generate any wage pressure."

A separate report from the Commerce Department showed that the U.S. trade deficit unexpectedly narrowed in August, while the Institute for Supply Management reported a modest slowdown in the pace of growth in the service sector in September.

Sector News

Continuing to recover from a recent sell-off, airline stocks showed a particularly strong move to the upside on the day. The NYSE Arca Airline Index surged up by 3.1 percent, climbing further off Wednesday's five-month closing low.

Brazilian airline GOL (GOL) and American Airlines (AAL) turned in two of the sector's best performances, jumping by 6.6 percent and 6.8 percent, respectively.

Railroad stocks also saw considerable strength on the day, driving the Dow Jones Railroads Index up by 2.7 percent. Union Pacific (UNP) and Kansas City Southern (KSU) posted standout gains.

Significant strength was also visible among healthcare stocks, as reflected by the 2 percent gain posted by the Dow Jones Health Care Index. The index rebounded after ending the previous session at its lowest closing level in well over a month.

Most of the other major sectors also moved to the upside, with notable strength visible among banking, biotechnology, and internet stocks.

On the other hand, gold stocks moved sharply lower on the day, dragging the NYSE Arca Gold Bugs Index down by 4.5 percent. The weakness in the sector came as gold for December delivery tumbled $22.20 to $1,192.90 an ounce.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Friday. Japan's Nikkei 225 Index rose by 0.3 percent, while Hong Kong's Hang Seng Index climbed by 0.6 percent. However, the markets in India, China and South Korea remained closed for public holidays.

The major European markets also moved to the upside on the day, although the German markets were closed for Unity Day. The U.K.'s FTSE 100 Index surged up by 1.3 percent, while the French CAC 40 Index jumped by 0.9 percent.

In the bond market, treasuries climbed well off their worst levels of the day but still closed slightly lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by nearly a basis point to 2.447 percent.

Looking Ahead

While the past week saw the release of a slew of closely watched economic reports, data on jobless claims and import and export prices are among the few key statistics due be released next week.

Nonetheless, traders are also likely to keep an eye on the minutes of the latest Federal Reserve meeting as well as speeches by a number of Fed officials.

Trading could also be impacted by reaction to quarterly results from Alcoa (AA), as the aluminum giant unofficially kicks of the earnings season after the close of trading next Wednesday.