Dow, S&P 500 hit record highs after strong jobs report

Dow, S&P 500 hit record highs after strong jobs report

Stocks tied to the economic recovery rose after a stronger-than-expected jobs report on Friday, sending two key market averages to all-time highs.

The Dow Jones Industrial Average rose 155 points, or 0.4%, and hit an intraday record high. The S&P 500 rose 0.2% for its own intraday all-time high, while the tech-heavy Nasdaq Composite was down 0.2%.

Friday’s jobs report showed that the U.S. economy added 943,000 jobs in July, according to the Labor Department. Economists expected the economy to have added 845,000 jobs last month, according to estimates from Dow Jones. The unemployment rate dropped to 5.4%, below the estimate of 5.7%.

Bank shares led the gains post-jobs report as rates shot higher, increasing their profitability prospects. JPMorgan, Bank of America and Wells Fargo all gained more than 1% in early trading. Industrials, retailers and energy stocks also gained as the jobs report soothed concerns about the economic comeback.

On the flip side, tech shares declined as the jump in rates caused investors to take profits in the names and move back into stocks that could benefit more from faster economic growth. Amazon, Apple and Salesforce were trading down slightly in early trading. Higher rates can also expose tech stock lofty valuations.

Defensive stocks, such as utilities and health care companies, also slumped after the report.

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“I think this is really, really good numbers for the stock market. It is just one number, they tend to be volatile, you’ve got to take it with a grain of salt. … And what this does more than anything is it causes a big shift in the leadership of this stock market,” James Paulsen, chief investment strategist for The Leuthold Group, said on CNBC’s “Squawk Box.”

“The S&P isn’t doing much, but the undertow here has shifted toward cyclicals and smalls, maybe even international markets to some degree, those more sensitive to the economy, and away from growth and defensive stocks, which have been leading for a while here” Paulsen added.

Friday’s report comes after the weekly initial claims number reported on Thursday came in at 385,000, which was in-line with expectations. However, the ADP private payrolls report on Wednesday showed a smaller-than-expected number of jobs added during July.

Wall Street is closely watching Friday’s jobs report given its potential to impact the Federal Reserve’s policy going forward. Fed Governor Christopher Waller told CNBC on Monday that he would advocate for the central bank to taper its asset purchases if the next two jobs reports showed a healthy recovery.

“This is a strong report. It is really going to cement the view that the Fed is not far off giving advance notice of a tapering announcement,” James McCann, the deputy chief economist for Aberdeen Standard Investments, said in a note. “Powell may well use the meeting of central bank policymakers in Jackson Hole later this month to provide further hints, but he has made clear that these jobs reports are a cornerstone in the Fed’s thinking on tightening policy.”

The jobs report also created movement in the bond market. 10-year Treasury yield continued its recent streak of volatile trading, jumping to 1.28% after the report. The benchmark yield traded at 1.13% earlier this week. Yields move inverse to prices.

Stocks finished Thursday’s session in the green, with the S&P 500 rising 0.6% to close at a new record. The Dow gained 271.58 points, or 0.78%. The Nasdaq Composite also advanced 0.78% for its fourth straight positive session.

A busy week of earnings continued on Friday with several notable reports, including from Canopy Growth, AMC Networks, Draftkings, Norwegian Cruise Line and Goodyear Tire. Additionally, Berkshire Hathaway is on deck for Saturday morning.

Through Thursday afternoon 427 S&P 500 components have posted quarterly results, with 88% topping earnings estimates, according to data from Refinitiv. When it comes to revenue, 87% have exceeded expectations.

For the week, the Dow is up 0.4%. The S&P and Nasdaq are up 0.77% and 1.5%, respectively.

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