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Strong Jobs Data, Powell Comments Lead To Rally On Wall Street - U.S. Commentary

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Stocks showed a substantial move to the upside over the course of the trading day on Friday, more than offsetting the sharp pullback seen in the previous session. The major averages all moved significantly higher, with the tech-heavy Nasdaq leading the way.

The major averages moved roughly sideways going into the close, holding on to strong gains. The Dow surged up 746.94 points or 3.3 percent to 23,433.16, the Nasdaq soared 275.35 points or 4.3 percent to 6,738.86 and the S&P 500 spiked 84.05 points or 3.4 percent to 2,531.94.

With the rally on the day, the major averages also moved notably higher for the week. While the Dow jumped by 1.6 percent, the Nasdaq and the S&P 500 shot up by 2.3 percent and 1.9 percent, respectively.

The rebound on Wall Street partly reflected a positive reaction to a Labor Department report showing much stronger than expected job growth in the month of December.

The Labor Department said non-farm payroll employment soared by 312,000 jobs in December after climbing by an upwardly revised 176,000 jobs in November.

Economists had expected employment to increase by about 177,000 jobs compared to the addition of 155,000 jobs originally reported for the previous month.

Paul Ashworth, Chief U.S. Economist at Capital Economics, suggested the substantial job growth in December would "seem to make a mockery of market fears of an impending recession."

"Admittedly, employment is a coincident indicator, whereas the ISM manufacturing index, which we learned yesterday fell sharply in December, is a leading indicator," Ashworth said.

He added, "But, even allowing for that distinction, this employment report suggests the U.S. economy still has considerable forward momentum."

The report also said the unemployment rate rose to 3.9 percent in December from 3.7 percent in November, while economists had expected the unemployment rate to come in unchanged.

However, the unexpected uptick by the unemployment rate came as the labor force jumped by 419,000 people compared to a much more modest 142,000-person increase in the household survey measure of employment.

The Labor Department said average hourly employee earnings payrolls climbed by 11 cents to $27.48 in December, reflecting a 3.2 percent increase compared to the same month a year ago.

The annual rate of growth in average hourly employee earnings in December accelerated from the 3.1 percent increase seen in November, reaching its highest level since April of 2009.

Even as the jobs data offset recent concerns about the U.S. economy, Federal Reserve Chairman Jerome Powell noted the central bank "will be patient" with monetary policy as it watches the economy evolve.

Powell stressed that monetary policy is not on a "preset path" after the Fed raised interest rates four times in 2018 and forecast two rate hikes in the new year.

"Particularly with muted inflation readings that we've seen coming in, we will be patient as we watch to see how the economy evolves," Powell said.

The Fed chief said the central bank is always prepared to significantly shift the stance of monetary policy if incoming economic data does not meet expectations.

Powell's comments came as part of a joint discussion with former Fed Chairs Janet Yellen and Ben Bernanke at the American Economic Association and Allied Social Science Association annual meeting in Atlanta.

The rally on Wall Street also came after China's Commerce Ministry said China and the U.S. would hold vice ministerial level trade talks in Beijing next week.

Sector News

Partly reflecting optimism about trade talks between the U.S. and China, steel stocks turned in some of the market's best performances. Reflecting the strength in the sector, the NYSE Arca Steel Index surged up by 6.4 percent.

Considerable strength was also visible among biotechnology stocks, as reflected by the 5.3 percent jump by the NYSE Arca Biotechnology Index.

Regeneron Pharmaceuticals (REGN) posted a standout gain after Guggenheim Partners upgraded its rating on the biotech company's stock to Buy from Neutral.

Oil service stocks also showed a substantial move to the upside on the day, driving the Philadelphia Oil Service Index up by 4.6 percent. The strength in the sector came as the price of crude oil for February delivery climbed $0.87 to $47.96

Software, semiconductor and computer hardware stocks also saw significant strength, contributing to the rally by the tech-heavy Nasdaq. Most of the other major sectors also moved higher amid broad based buying interest.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Friday. Japan's Nikkei 225 Index plummeted by 2.3 percent, while Hong Kong's Hang Seng Index soared by 2.2 percent.

Meanwhile, the major European markets all showed strong moves to the upside on the day. While the German DAX Index spiked by 3.4 percent, the French CAC 40 Index and the U.K.'s FTSE 100 Index shot up by 2.7 percent and 2.2 percent, respectively.

In the bond market, treasuries pulled back sharply after trending higher in recent sessions. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, jumped by 10.5 basis points to 2.659 percent.

Looking Ahead

Next week's trading may be impacted by reaction to reports on service sector activity and consumer price inflation as well as the minutes of the latest Federal Reserve meeting.

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