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A tepid nonfarm payroll report had little effect as benchmarks extended their multi-year gains on Friday. Though the gains on Friday were nothing to write home about, they ensured weekly gains for the markets. In a range-bound trading session, investors did take note of the disappointing jobs data. However, eventually hopes emerged that the US central bank might soon act towards implementing additional economic measure.
The Dow Jones Industrial Average (DJI) was up 0.1% and ended at 13,306.64. The Standard & Poor 500 (S&P 500) gained 0.4% and finished yesterday’s trading session at 1,437.92. The tech-laden Nasdaq Composite Index added a paltry 0.02% to end just 0.61 point higher at 3,136.42. The fear-gauge CBOE Volatility Index (VIX) dropped 7.8% and settled at 14.38. The advancers on the New York Stock Exchange outpaced the declining stocks; as for 65% stocks that gained, 31% stocks closed lower. Total volume on the NYSE was 3.7 billion shares.
The day’s action was largely dominated by the government’s payroll data. The U.S. Bureau of Labor Statistics reported that total nonfarm payroll employment was up 96,000 in August. This was well below consensus estimates of 123, 000. This also compared unfavorably with this year’s employment growth average per month of 139,000. Separately, the unemployment rate dropped to 8.1% in August from prior month’s 8.3%. However, the drop in unemployment rate was reportedly a result of lesser number of people looking for work.
This report has great significance since total non-farm payroll accounts which accounts for approximately 80% of the workers who produce the entire gross domestic product of the United States, was largely below expectations as well as lower than the year’s monthly average. While investors did get jittery following the release of this jobs data, the Street’s hopes for additional economic measures gained strength. Some economists or strategists stated that the weak numbers would possibly make the US Federal Reserve prioritize the need for additional economic measures. The central bank’s policy makers are scheduled to meet next week.
These hopes enabled the benchmarks to extend their multi-year highs. The Dow is now at its best level since December 2007 and the S&P 500 climbed to its highest since January 2008. However, benchmarks owed these new multi-year highs to news that the European Central Bank (ECB) had agreed to buy unlimited bonds to help the troubled Euro-zone nations. The domestic benchmarks on Thursday added robust gains after ECB President Mario Draghi announced the same. He had stated: “The Governing Council decided on the modalities for undertaking Outright Monetary Transactions (OMT) in secondary markets for sovereign bonds in the euro area”. The bond purchase would help nations such as Italy and Spain to control their burgeoning borrowing costs.
The gains on Thursday boosted the benchmarks sufficiently higher for the week and Friday’s gains further ensured a finish in the green. The Dow, S&P 500 and Nasdaq gained 1.7%, 2.2% and 2.3%, for the week respectively. This was Dow’s best weekly finish since end of July and the S&P 500 had its best weekly jump in almost three months.
Looking at the sectors, materials were a major gainer among the 10 S&P industry groups. The Materials Select Sector SPDR (XLB) jumped almost 2.0%. Among the stocks Cliffs Natural Resources Inc (NYSE:CLF), ArcelorMittal (ADR) (NYSE:MT), Vale SA (ADR) (NYSE:VALE), Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) and Southern Copper Corp (NYSE:SCCO) soared by 14.5%, 7.0%, 6.8%, 8.5% and 5.3%, respectively.