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Market Snapshot: Dow, S&P 500 rally to records as weaker-than-expected April jobs report cools fears of hawkish Fed

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The Dow Jones Industrial Average was trading higher midday Friday, after opening in negative territory, and the technology-laden Nasdaq Composite rose sharply, even as the April nonfarm payrolls report came in way below estimates, raising questions about the timing and pace of the labor-market rebound from COVID.

The weakness reflected in the jobs report may support some views that central bankers in the U.S. will keep monetary policy accommodative for an extended period.

How are stock benchmarks performing?
  • The Dow Jones Industrial Average
    DJIA,
    +0.47%

    was up 156 points to 34,703, a gain of 0.5%, establishing an intraday record high at 34,726.48.
  • The S&P 500 index
    SPX,
    +0.75%

    added 33 points, or 0.8%, at 4,235. carving out its own intraday all-time high at 4,236.72.
  • The Nasdaq Composite Index
    COMP,
    +1.21%

    gained 180 points to about 13,810, a gain of 1.3%,

On Thursday, the Dow
DJIA,
+0.47%

added 318.19 points to reach a record close of 34,548.53; a gain of 0.9%, the S&P 500
SPX,
+0.75%

moved up 34.03 points, or 0.8%, at 4,201.62; while the Nasdaq Composite Index
COMP,
+1.21%

traded up 50.42 points, or 0.4%, to 13,632.84, ending a streak of four straight losses.

What’s driving the market?

A weaker-than-expected jobs report managed to deliver an upward jolt to equity markets on Friday.

“Put differently, the market is saying ‘bad news is good news’ for the stock market bubble,” wrote Chris Senyek, chief investment strategist at Wolfe Research, in a daily note.

The U.S. created 266,000 new jobs in April, on a seasonally adjusted basis, well below forecasts ranging from a gain of 755,000 to 1.25 million. The unemployment rate rose to 6.1% in April from 6%, even as average hourly wages rose 21 cents to $30.17.

On top of that, gains in March were lowered to 770,000 from 916,000, injecting at least some uncertainty into the pace of the rebound from COVID.

Some of the most bullish projections from Aneta Markowska and Thomas Simons at Jefferies LLC saw net job gains last month hitting 2.1 million, which would have marked the fastest growth since June of 2020.

The report, however, may bolster the view that the Federal Reserve will keep accommodative policies in place for a prolonged period, which had come into question in recent weeks on the back of evidence of a healthy rebound from the coronavirus outbreak.

“One thing is clear that the loose monetary policy isn’t going anywhere soon,” wrote
Naeem Aslam, chief market analyst at AvaTrade in a note after NFP.

Speaking with Bloomberg TV after the Friday jobs report, Minneapolis Fed President Neel Kashkari said the surprise in the data shows the importance of basing monetary policy on outcomes, not forecasts.

“For all those people who have been saying ‘oh my gosh, the Fed needs to normalize quantitative easing,’ today’s job report is just an example of—we have a long way to go,” Kashkari said, in the interview.

The policy maker said he sees no shift in the central bank’s easy-money policy stance and anticipates that a jump in inflation will be transitory.

However, the Wolfe Research analyst doesn’t see the Friday report altering the trajectory for inflation. “This morning’s employment report has no impact on our belief that inflation readings are going to come in hotter-than-expected in the weeks ahead,” Senyek wrote.

“First, while pandemic-related stimulus payments and unemployment benefits are desperately needed by some Americans, we believe that recent fiscal measures have incented others not to return to the workforce over the near term,” he said.

Friday’s jobs report comes after weekly initial unemployment benefit claims in the U.S. fell to 498,000 for first time in pandemic era in data published Thursday.

Michael Hewson, chief market analyst at CMC Markets, said that jobs picture was befuddling compared with other healthy economic readings but does reinforce views that the recovery from the viral outbreak will be an uneven one.

“As Fed chair Jay Powell indicated only recently, one decent set of jobs numbers does not a recovery make, and today’s surprise miss is a timely reminder of that,” Hewson wrote. “It’s also a timely reminder to investors to never assume anything when it comes to financial markets and more importantly human incentives.”  

The 10-year Treasury note yield
TMUBMUSD10Y,
1.563%

briefly fell to around 1.50%, helping to create a runway for technology stocks that tend to be sensitive to bond yields.

U.S. stock indexes have been mostly advancing in the past month, seeing record highs, driven by evidence of improvement in the economy and by strong results from American corporations reporting first-quarter earnings.

Shares of tech companies, in particular, had taken it on the chin after prospering during the lockdown protocols in place last year to combat the coronavirus pandemic. Investors have been rotating their investments into assets seen as performing better during the economic recovery, including energy, financials, industrials, materials and transportation stocks.

Meanwhile, the healthcare sector remains in focus after President Joe Biden’s administration has advocated waiving intellectual property rights to potentially enable companies in developing countries to manufacture their own COVID vaccines. Companies like Pfizer,
PFE,
-0.09%

AstraZeneca
AZN,
+0.51%
,
BioNTech 
BNTX,
+8.57%

 Johnson & Johnson
JNJ,
+0.43%

 and Moderna
MRNA,
+1.78%

have seen their stocks fall as a result this week.

Pfizer and its German partner BioNTech SE also said Friday they have initiated submission of a Biologics License Application (BLA) with the U.S. Food and Drug Administration for full approval of their COVID-19 vaccine in individuals 16 years of age and older.

In public health news, the global tally for the coronavirus-borne illness rose above 156 million on Friday, according to data aggregated by Johns Hopkins University, while the death toll rose above 3.25 million. India, meanwhile, remains second to the U.S. by cases at 21.5 million and third by fatalities at 234,083. India added a record of 414,000 new cases in a 24-hour period, a fresh global record, and almost 4,000 deaths, according to its health ministry. 

Which companies are in focus?
  • Shares of Cigna CorpCI gained 0.5% in premarket trading Friday, after the health services company reported first-quarter profit and revenue that rose above expectations, as total customer relationships grew 14% and pharmacy customers increased 28%. 
  • USA Today parent Gannett Co. Inc. GCI reported Friday a wider net loss on revenue that fell more than some analysts expected, citing negative impacts from the COVID-19 pandemic as well as “general trends” hurting the publishing industry. 
  • Spectrum Brands Holdings IncSPB posted stronger-than-expected earnings for its fiscal third quarter Friday, and raised its fiscal 2021 guidance. 
  • Shares of DraftKings Inc. DKNG declined Friday, after the sports betting company reported a first-quarter loss that more than quadrupled and was wider than expected, but revenue that nearly tripled to beat forecasts and raised its full-year outlook. 
  • Bank stocks took a dive in premarket trading Friday, as Treasury yields sank in the wake of disappointing government jobs data. Shares of JPMorgan Chase & Co.
    JPM,
    -0.21%
    ,
    Bank of America Corp.
    BAC,
    -0.00%
    ,
    Citigroup Inc.
    C,
    -0.05%
    ,
    and Wells Fargo & Co.
    WFC,
    -0.75%

    were all trading lower, as was the SPDR Financial Select Sector ETF
    XLF,
    -0.04%

     was down.
  • Jefferies upgraded shares of the new Tilray Inc. TLRY to buy from underperform on Friday, and said the recent merger of the company with rival Aphria Inc. Shares were up nearly 20%.
  • Shares of Roku Inc.
    ROKU,
    +11.48%

    jumped 13% Friday after the streaming company late Thursday delivered better-than-expected results for its first quarter and issued an upbeat outlook for the current period.
  • Shares of Nikola Corp.
    NKLA,
    +12.23%

     rallied Friday, putting them on an early track to snap a 8-session losing streak, after the electric vehicle maker reported a narrower-than-expected first-quarter loss while reporting no revenue, which was in line with forecasts. Its stock was up over 10%.
How are other assets faring?
  • In Europe, the Stoxx Europe 600 SXXP closed 0.9% higher and London’s FTSE 100 UKX advanced 0.8%.
  • The 10-year Treasury note yield TMUBMUSD10Y shed 1 basis point to 1.55%.
  • The greenback was 0.4% lower, based on the ICE U.S. Dollar Index DXY.
  • Gold futures GC00 jumped $16.50, or 0.9%, to settle at $1,832 an ounce, trading around its highest since February on Comex. U.S. crude futures CL.1 lost 26 cents, or 0.4%, to $64.45 a barrel on the New York Mercantile Exchange, threatening to snap a 3-session string of gains.
  • In Asian trade, Hong Kong’s Hang Seng Index HSI edged 0.1% lower. China’s Shanghai Composite SHCOMP closed 0.7% lower, while Japan’s Nikkei 225 NIK rose less than 0.1%.

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