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Stocks Rally In Reaction To Upbeat Jobs Data - U.S. Commentary

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After moving moderately higher early in the session, stocks saw further upside over the course of the trading day on Friday. The tech-heavy Nasdaq showed a particularly strong upward move, reaching a new record closing high.

The major averages all finished the day firmly in positive territory. The Dow advanced 197.16 points or 0.8 percent to 26,504.95, the Nasdaq surged up 127.22 points or 1.6 percent to 8,164.00 and the S&P 500 jumped 28.12 points or 1 percent to 2,945.64.

Despite the rally on the day, the major averages turned in a mixed performance for the week. The Dow edged down by 0.1 percent, while the Nasdaq and the S&P 500 both edged up by 0.2 percent.

The strength on Wall Street came after the Labor Department released a closely watched report showing much stronger than expected job growth in the month of April.

The Labor Department said non-farm payroll employment surged up by 263,000 jobs in April following a downwardly revised increase of 189,000 jobs in March.

Economists had expected employment to climb by 185,000 jobs compared to the addition of 196,000 jobs originally reported for the previous month.

The report also said the unemployment rate fell to 3.6 percent in April from 3.8 percent in March, while economists had expected the rate to remain unchanged.

With the unexpected decrease, the unemployment rate slid to its lowest level since hitting 3.5 percent in December of 1969.

The drop in the unemployment rate was largely due to a significant contraction in the labor force, however, with the labor force shrinking by 490,000 people.

The Labor Department also said the average workweek for all employees on private non-farm payrolls decreased by 0.1 hour to 34.4 hours in April.

"The drop back in hours worked and the continued weakness in the household survey measure of employment suggests that the labor market is not quite as strong as that decent headline gain implies," said Michael Pearce, Senior U.S. Economist at Capital Economics.

The jobs data largely overshadowed a separate report from the Institute for Supply Management unexpectedly showing a continued slowdown in the pace of service sector growth in the month of April.

The ISM said its non-manufacturing index dropped to 55.5 in April after falling to 56.1 in March, with the index hitting its lowest level since a matching reading in August of 2017.

While a reading above 50 still indicates growth in the service sector, economists had expected the index to inch up to 57.0.

Sector News

Steel stocks moved sharply higher over the course of the trading session, driving the NYSE Arca Steel Index up by 4 percent. The index rebounded after ending the previous session at its lowest closing level in well over three months.

Industry giant U.S. Steel (X) spiked 17.3 percent after reporting first quarter results that exceeded analyst estimates on both the top and bottom lines.

Bargain hunting also contributed to significant strength among oil service stocks, with the Philadelphia Oil Service Index jumping by 2 percent after showing a steep drop over the past several sessions.

The rebound by oil service stocks came amid a modest increase by the price of crude oil, as crude for June delivery inched up $0.13 to $61.94 a barrel.

Tobacco, biotechnology natural gas and brokerage stocks also saw considerable strength on the day, reflecting broad based buying interest on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance on Friday, with markets in Japan and China closed for holidays. Hong Kong's Hang Seng Index climbed by 0.5 percent, while South Korea's Kospi dropped by 0.7 percent.

Meanwhile, the major European markets all moved to the upside on the day. While the French CAC 40 Index edged up by 0.2 percent, the U.K.'s FTSE 100 Index rose by 0.4 percent and the German DAX Index advanced by 0.6 percent.

In the bond market, treasuries moved higher over the course of the session after seeing initial weakness. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, dipped 2.1 basis points to 2.531 percent.

Looking Ahead

Following the slew of U.S. economic data released over the past week, the economic calendar for next week starts off relatively quiet, although traders are likely to keep a close eye on reports on the U.S. trade deficit and producer and consumer price inflation.

On the earnings front, Tyson Foods (TSN), SeaWorld (SEAS), Electronic Arts (EA), Lyft (LYFT), Papa John's (PZZA), Office Depot (ODP), Wendy's (WEN), Hostess (TWNK), GoPro (GPRO), and Viacom (VIAB) are among the companies due to report their quarterly results next week.

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