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Dow, S&P 500 close at record highs, as U.S. stocks book weekly gains after stronger-than-expected jobs report

By Christine Idzelis and Mark DeCambre

The Dow and the S&P 500 index ended at all-time highs Friday after the monthly U.S. jobs report came in better than expected, as the economy continues to recover from the COVID-19 pandemic and investors shake off delta variant concerns.

Consumer discretionary shares and technology stocks were hurt by a rise in long-dated benchmark bond yields and a rise in the U.S. dollar though, putting pressure on growth stock areas of the market.

What did the major indexes do?

On Thursday (link), the Dow industrials rose 271.58 points, or 0.78%, to finish at 35,064.25. The S&P 500 gained 26.44 points, or 0.6%, to close at 4,429.10 and the Nasdaq Composite advanced 114.58 points, or 0.8%, to end at 14,895.12, both setting fresh closing records.

For the week, the Dow gained 0.8%, while the S&P 500 advanced 0.9% and the tech-heavy Nasdaq rose 1.1%.

Opinion: The S&P 500 looks strong--but these 'internals' are far less positive (link)

What drove markets?

The Dow and S&P 500 closed at record highs Friday, with major U.S. stock benchmarks booking weekly gains of around 1%.

The record finishes for the Dow and S&P 500 came after investors digested a fresh employment report (link) for July from the U.S. Labor Department that saw a better-than-expected 943,000 jobs created and the unemployment rate fall to 5.4% from 5.9%. The gain in new jobs exceeded what was seen in June and offers some hope that the stalled employment recovery is regaining some steam.

The jobs report "threw some cold water on worries that a lot of investors had that cyclical strong growth will slow," said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Co., in a phone interview.

Schutte expects the stock market will continue to move higher this year, but "more so in those cyclical areas that do well when growth is strong." That means buying opportunities in small-cap and value stocks, he said.

Stock-market investors tilted toward undervalued market segments, buying financials (XLF), energy (XLE) and materials shares (XLB) after the employment report.

"The Main Street economy is recovering as well or better than we would have hoped," said Josh Rubin, a portfolio manager at Santa Fe, New Mexico-based Thornburg Investment Management, in an interview. "That's definitely much more positive for the brick-and-mortar economy compared to the Nasdaq-side of the economy being able to maintain lofty valuations."

The July jobs data came as businesses have been struggling with back-to-work plans due to the fast spread of the delta variant of Covid, which has been hitting the U.S. and other countries world-wide.

Consumer discretionary (XLY) was a laggard among the S&P 500's 11 sectors, down 0.7% as it was led by declines in, Tesla Inc.(TSLA), and travel-related firms Booking Holdings Inc.(BKNG) and Expedia Group(EXPE).

Still, the strong jobs report may be underpinning some hope for ongoing improvement in quarterly corporate earnings in the remainder of the year from American companies after what has thus far been a strong second quarter, Matt Peron, director of research at Janus Henderson Investors said.

"This bodes well for continued earnings strength in 2H21, which should be supportive of the market, especially for the economically sensitive sectors which have been laggards of late," wrote Peron in emailed remarks Friday.

However, the data also may embolden the Federal Reserve to pullback on accommodative measures that have helped to stimulate economic growth and asset prices.

Indeed, a number of analysts took the report as giving credence to the Federal Reserve's timeline to taper its quantitative-easing measures, or the $120 billion a month bond-buying program that helped to ease tight financial conditions during the height of the pandemic turmoil back in March and April of 2020.

"We know that the Fed was looking for substantial progress in the labour market recovery and that is exactly what we appear to be seeing over the past two reports," wrote Fiona Cincotta, senior financial markets analyst at City Index, in emailed remarks. "Today's better than forecast reading prompted bets that the Fed could look to taper support sooner."

Investors have speculated that the U.S. central bank may signal its intention to scale back its asset-purchases program at a monetary policy gathering in Jackson Hole, in northwestern Wyoming, by the end of this month.

Northwestern Mutual Wealth Management Co.'s Schutte expects the next monthly jobs report may be particularly influential in any potential move by the Fed toward tapering as it will have "the delta variant fully baked into it." He said concerns over the delta variant has "amped up in the last couple of weeks."

See also: Not delta but 'all alpha': economists react to July 'remarkably strong' U.S. employment report (link)

Earlier this week (link), Federal Reserve Vice Chairman Richard Clarida, said the conditions for the first rate increase will be met "by year-end 2022" allowing for the first move in 2023. The Fed vice chairman said he sees the recent rise in inflation as "transitory." But he added that the risks of higher inflation are greater than the risks of low inflation.

"The Fed is playing a fine line," said Phil Kastenholz, director in investment strategy and research at Aspiriant, in an interview Friday. "We're worried about the market not fully appreciating how soon the Fed may have to increase rates and the speed of tapering."

Kastenholz said that he is particularly concerned about wage inflation, with the jobs report Friday showing a 4% increase over the past year. He worries higher wages could lead to stickier rises in inflation.

In other economic news, a reading on U.S. wholesale inventories increased 1.1% in June.

On the public health front, the U.S. is averaging more than seven times as many new COVID cases a day as it was at the beginning of July, according to a New York Times tracker, the majority of whom are in unvaccinated people.

California will require COVID-19 vaccines for all healthcare workers by Sept. 30, the Associated Press reported (link). And New Jersey will require masks for K-12 students and school staff when the new year begins in a few weeks, Gov. Phil Murphy was set to announce Friday as COVID-19 cases rise in the state, AP reported. (link)

What stocks were in focus?

How did other markets do?

--Barbara Kollmeyer contributed to this report.

-Christine Idzelis


(END) Dow Jones Newswires

08-07-21 1202ET

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