Upbeat Jobs Data Leads To Rally On Wall Street - U.S. Commentary

(RTTNews) - Stocks showed a strong move to the upside during trading on Friday, as traders reacted positively to the Labor Department's monthly employment report. With the gains on the day, the S&P 500 and the Nasdaq ended the session at new record closing highs.

The major averages finished the day firmly in positive territory. The Dow shot up 191.48 points or 1 percent to 18,543.53, the Nasdaq jumped 54.87 points or 1.1 percent to 5,221.12 and the S&P 500 advanced 18.62 points or 0.9 percent to 2,182.87.

With the strong gains on the day, the major averages all moved higher for the week. While the Nasdaq surged up by 1.1 percent, the Dow and the S&P 500 climbed by 0.6 percent and 0.4 percent, respectively.

The rally on Wall Street came following the release of a report from the Labor Department showing much stronger than expected job growth for the second straight month.

The Labor Department said non-farm payroll employment surged up by 255,000 jobs in July after jumping by an upwardly revised 292,000 jobs in June. Employment had been expected to increase by about 185,000 jobs.

The much stronger than expected job growth seen over the past two months came after employment edged up by just 24,000 jobs in May.

Even with the stronger than expected job growth, the unemployment rate held at 4.9 percent in July. The unemployment rate had been expected to edge down to 4.8 percent.

The unemployment rate held steady as the household survey measure of employment soared by 420,000 jobs, but the number of people in the labor force also shot up by 407,000.

The report also said average hourly employee earnings climbed by $0.08 or 0.3 percent to $25.69 in July, although the annual rate of growth was unchanged at 2.6 percent.

While the data points to strength in the labor market, analysts said the Federal Reserve remains unlikely to raise interest rates next month due in part to muted GDP growth.

"With the RBA in Australia and the Bank of England providing more monetary stimulus and Japan boosting its fiscal stimulus, we think a majority of Fed officials will be nervous about raising rates given the significant boost it could give the dollar," said ING economist James Knightley.

He added, "Instead, we think they will continue to tread cautiously with one rate hike in 1Q17 and a further one in the second half of next year."

A separate report from the Commerce Department showed that the U.S. trade deficit widened by more than expected in the month of June.

Sector News

Financial stocks saw substantial strength throughout the trading day, as the upbeat jobs data generated optimism about the economic outlook.

Reflecting the strength in the financial sector, the NYSE Arca Broker/Dealer Index and the Dow Jones Banks Index surged up by 3 percent and 2.9 percent, respectively.

Considerable strength was also visible among networking stocks, as reflected by the 2.1 percent jump the NYSE Arca Networking Index. Anixter (AXE) and Infinera (INFN) posted standout gains.

Transportation, computer hardware, oil service and steel stocks also saw significant strength, moving higher along with most of the other major sectors.

Meanwhile, gold stocks bucked the uptrend, with the NYSE Arca Gold Bugs Index slumping by 3.4 percent after ending the previous session at its best closing level in over three years.

The weakness in the gold sector came amid a sharp drop by the price of the precious metal, with gold for December delivery tumbling $23 to $1,344.40 an ounce.

Interest rate-sensitive utilities stocks also saw significant weakness on the heels of the better than expected employment report.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance on Friday. Hong Kong's Hang Seng Index surged up by 1.4 percent, while Japan's Nikkei 225 Index closed just below the unchanged line and China's Shanghai Composite Index edged down by 0.2 percent.

Meanwhile, the major European markets all moved to the upside on the day. While the U.K.'s FTSE 100 Index advanced by 0.8 percent, the German DAX Index and the French CAC 40 Index jumped by 1.4 percent and 1.5 percent, respectively.

In the bond market, treasuries pulled back rather sharply on the heels of the upbeat jobs data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 7.9 basis points to 1.582 percent.

Looking Ahead

The economic calendar for next week starts off relatively quiet but picks up later in the week with the release of reports on retail sales and producer prices.

On the earnings front, Disney (DIS), Tyson Foods (TSN), Kohl's (KSS), Macy's (M), Nordstrom (JWN), and J.C. Penney (JCP) are among the companies due to report their quarterly results next week.