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U.S. Stocks Rally, Nasdaq Hits Record High On Unbelievably Strong Jobs Data

wallstreet aug29 05jun20 lt

Stocks moved sharply higher during trading on Friday following the release of a Labor Department report showing an unexpected jump in employment in the month of May. With the rally on the day, the tech-heavy Nasdaq reached a new record intraday high.

The major averages ended the day off their highs of the session but still posted substantial gains. The Dow spiked 829.16 points or 3.2 percent to 27,110.98, the Nasdaq jumped 198.27 points or 2.1 percent to 9,814.08 and the S&P 500 surged up 81.58 points or 2.6 percent to 3,193.93.

For the week, the Dow skyrocketed by 6.8 percent, while the S&P 500 and the Nasdaq shot up by 4.9 percent and 3.4 percent, respectively.

The rally on Wall Street came as the Labor Department's closely watched monthly jobs report seemed to prove traders were right to be optimistic about a quick economic recovery.

The Labor Department said non-farm payroll employment jumped by 2.51 million jobs in May after plummeting by a revised 20.69 million jobs in April.

The record spike in employment came as a shock to economists, who had expected the loss of another 8.0 million jobs following the nosedive of 20.5 million jobs originally reported for the previous month.

Employment rose sharply in leisure and hospitality, construction, education and health services, and retail trade, according to the Labor Department.

The Labor Department claimed the improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus pandemic and efforts to contain the spread of the disease.

James Knightley, Chief International Economist at ING, called the data "simply astonishing given the slow pace of reopening and the fact that more than 12 million people filed a new unemployment claim during the survey period."

With the unexpected rebound in employment, the Labor Department said the unemployment rate dropped to 13.3 percent in May from 14.7 percent in April. Economists had expected the unemployment rate to surge up to 19.8 percent.

The unexpected decrease in the unemployment rate came as the household survey found employment soared by more than 3.8 million persons compared to the 1.7 million person increase in the size of the labor force.

However, Knightley said there are "some oddities in here," as are the number of unemployed fell by only 2.1 million, suggesting "new workers appear to have been magicked up out of no-where."

A note from the Labor Department also revealed the unemployment rate would have been about 3 percentage points higher if not for the misclassification of persons absent from work due to coronavirus-related business closures.

Sector News

Energy stocks led the broad based rally, benefiting from a sharp increase by the price of crude oil. Crude for July delivery spiked $2.14 to $39.55 a barrel amid optimism about demand.

Reflecting the strength in the energy sector, Philadelphia Oil Service Index skyrocketed by 12.9 percent, the NYSE Arca Natural Gas Index soared by 8 percent and the NYSE Arca Oil Index surged up by 7.6 percent.

Extending the rally seen in recent sessions, banking stocks also moved substantially higher, driving the KBW Bank Index up by 4.6 percent. With the gain, the index reached a three-month closing high.

Significant strength was also visible among networking stocks, as reflected by the 4.2 percent jump by the NYSE Arca Networking Index. The index ended the session at its best closing level in over four months.

Commercial real estate, housing, computer hardware and transportation stocks also saw considerable strength, reflecting the broad based buying interest on Wall Street.

Meanwhile, gold stocks were among the few groups to buck the uptrend, with the NYSE Arca Gold Bugs Index falling by 1.2 percent.

The sell-off by gold stocks came amid a steep drop by the price of the precious metal, as gold for August delivery plummeted $44.40 to $1,683 an ounce.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Friday. Japan's Nikkei 225 Index climbed by 0.7 percent, while Hong Kong's Hang Seng Index surged up by 1.7 percent.

The major European markets also showed significant moves upside on the day. While the French CAC 40 Index soared by 3.7 percent, the German DAX Index spiked by 3.4 percent and the U.K.'s FTSE 100 Index jumped by 2.3 percent.

In the bond market, treasuries extended the steep drop seen over the two previous sessions. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 8.4 basis points to a two-month closing high of 0.904 percent.

Looking Ahead

The Federal Reserve's monetary policy meeting is likely to be in the spotlight next week, although traders may also keep an eye on reports on consumer and producer prices, weekly jobless claims, and consumer sentiment.

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