Stocks rose to reach record highs on Friday as investors digested a disappointing April jobs report, which showed the U.S. economy added back far fewer jobs than expected last month despite easing stay-in-place restrictions.
The S&P 500 and Dow each reached highs. The Nasdaq advanced, after the disappointing economic data appeared to make a case for monetary policy to stay on hold and interest rates to stay low, supporting tech and growth stocks. Treasury yields steadied after sinking immediately following the jobs report, with the 10-year yield hovering below 1.58%.
The Labor Department's April jobs report showed that U.S. employers brought back just 266,000 jobs in April, whereas a gain of at least 1 million had been expected. Payroll gains for March were also revised lower. The unemployment rate unexpectedly increased to 6.1%, widening further from its pre-pandemic level of 3.5%.
The disappointing data served to bolster some economists' and central bankers' claims that risks to the downside still persist for the U.S. economic recovery, even as more social distancing standards get lifted. Altogether, the U.S. economy remained 8.2 million payrolls short of pre-pandemic levels, and both the unemployment rate and labor force participation are still off from their February 2020 levels.
Federal Reserve Chair Jerome Powell has suggested he would want to see a "string" of strong payroll gains totaling more than 1 million before the central bank considers adjusting its ultra-accommodative monetary policy posturing. With the April jobs report such a stark disappointment, it appeared the economy still did remain far from the central bank's targets of reaching maximum employment, and would keep the Federal Reserve on hold with its current policies.
“The smaller rise in payrolls should at least assuage some concerns around the Fed policy outlook," Seema Shah, Chief Strategist at Principal Global Investors, wrote in an email Friday morning. "As we have heard several times in recent days, even a very strong jobs number wouldn’t have caused the committee to formally discuss changing the pace of bond purchases, so today’s number certainly won’t be giving the Fed cause for concern. They will be in no rush to bring forward tapering plans."
Heading into the report, investors had been contemplating improvements in other economic data with both optimism about the post-pandemic rebound and trepidation over the implications for monetary policy, with persistently strong data likely to bolster the case for the Fed to ease up on policies that had supported the recovery as well as asset prices. Prospects of higher interest rates have especially weighed on growth and technology stocks, which would see valuations come under pressure once rates lift from their current near-zero levels.
4:01 p.m. ET: S&P 500, Dow set new closing highs
Here's where the three major indexes ended Friday's session:
S&P 500 (^GSPC): +30.81 points (+0.73%) to 4,232.43
Dow (^DJI): +277.91 points (+0.66%) to 34,776.44
Nasdaq (^IXIC): +119.39 points (+0.88%) to 13,752.24
12:06 p.m. ET: Stocks hold higher, tech shares lead S&P 500
Stocks' momentum carried into the afternoon session Friday, with the S&P 500 hovering at record levels. Treasury yields pared earlier losses, and the 10-year Treasury yield ticked slightly higher.
The information technology, communication services and consumer discretionary sectors led gains in the blue-chip index, outperforming as Treasury yields retreated. The financials sector was slightly in the red, with banks the biggest beneficiary of higher yields and interest rates for profits.
Each of the Big Tech "FAANG" names traded in positive territory Friday afternoon. Nike, Cisco and Microsoft led advances in the Dow, while Dow Inc., IBM and Verizon lagged.
9:48 a.m. ET: Disappointing jobs report doesn't 'destroy that narrative' of cyclical rotation, but may cause near-term bounce-back in tech: Portfolio manager
The weak April jobs report catalyzed a rebound in technology names Friday morning, with the disappointing data poised to apt to keep the Fed on hold with low rates and accommodative monetary policy for longer.
However, as just one data point amid what has otherwise been a strong batch of recent economic data, the jobs report will not ultimately knock cyclical and value stocks from their current upward trajectory, according to at least one portfolio manager.
“On a day like today, you’re seeing that pullback in the 10-year rate, you’re seeing that pullback in the U.S. dollar, and I think that’s translating into some of those longer-duration assets or investments. Technology fits squarely into that space,” Craig Fehr, Edward Jones portfolio manager, told Yahoo Finance on Friday. “So we’re seeing tech under a little bit of a rebound."
"We’ve seen this rotation from growth, which has outperformed for years now, into value under the premise that rates were moving higher, the cyclical rebound is under way," he added. "I don’t this jobs report does anything to destroy that narrative. But I do think we’re going to see this short-term reaction where it’s a bounce-back between value and growth, defense and offense, and I think on a day like today you’re seeing more of that defense. So it’s benefiting stay-at-home names, it’s benefiting longer-duration growthier names like tech. And I suspect we will continue to see that bounce back and forth as we continue to progress.”
9:31 a.m. ET: Stocks trade mixed after jobs report miss, Nasdaq surges as Treasury yields slide
Here's where markets were trading after the opening bell Friday morning:
S&P 500 (^GSPC): +0.68 points (+0.02%) to 4,202.3
Dow (^DJI): -69.94 points (-0.2%) to 34,471.45
Nasdaq (^IXIC): +67.08 points (+0.48%) to 13,697.93
Crude (CL=F): -$0.36 (-0.56%) to $64.35 a barrel
Gold (GC=F): +$14.50 (+0.8%) to $1,830.20 per ounce
10-year Treasury (^TNX): -1.4 bps to yield 1.545%
8:57 a.m. ET: U.S. economy adds back far fewer jobs than expected and unemployment rate unexpectedly climbs
U.S. employers brought back just 266,000 jobs in April, sharply missing consensus economists' expectations for a rise of 1 million, according to Bloomberg data. The unemployment rate rose to 6.1% from 6.0% in March, whereas a drop to 5.8% was expected. March's non-farm payroll gain was also revised sharply lower, showing a rise of 770,000 versus the 916,000 previously reported. February's payrolls were revised up by 68,000 to 536,000.
A handful of industries in the service sector generated outsized drags on the headline payrolls figure. Temporary help services lost 111,400 payrolls in April, with jobs in this industry dropping for a back-to-back month. Transportation and warehousing jobs fell by more than 74,000, and retail trade jobs declined by 15,300. In the goods-producing sector, manufacturing jobs unexpectedly dropped by 18,000 whereas a rise of 54,000 had been expected, marking the first net decline in these payrolls since January.
Meanwhile, leisure and hospitality jobs rose by 331,000, adding to a gain of 206,000 payrolls in March and 413,000 in February. This industry group, however, remains 3 million payrolls short of its pre-pandemic levels, and has been the hardest hit due to social distancing restrictions.
7:18 a.m. ET: Stock futures point to a higher open
Here's where markets were trading ahead of the opening bell:
S&P 500 futures (ES=F): 4,203.75, up 9.5 points or 0.23%
Dow futures (YM=F): 34,534.00, up 92 points or 0.27%
Nasdaq futures (NQ=F): 13,633.25, up 35.5 points or 0.26%
Crude (CL=F): +$0.03 (+0.05%) to $64.74 a barrel
Gold (GC=F): +$3.90 (+0.21%) to $1,819.60 per ounce
10-year Treasury (^TNX): up 1.1% to yield 1.572%
6:13 p.m. ET: ET Thursday: Stock futures drift ahead of jobs report
Here's where markets were trading as the overnight session kicked off:
S&P 500 futures (ES=F): 4,195.25, up 1 point or 0.02%
Dow futures (YM=F): 34,430.00, down 12 points or 0.03%
Nasdaq futures (NQ=F): 13,611.5, up 13.75 points or 0.1%
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
Read more from Emily: