U.S. stocks ended sharply higher on Friday buoyed by robust job data, a dovish statement by the Fed chair and positive developments on the United States – China trade war front. Friday’s market recovery came as a major relief to investors after severe losses in the previous session. All the major stock indexes finished in the green.
The Dow Jones Industrial Average (DJI) closed at 23,433.16, gaining 1.8% or 746.94 points. The S&P 500 Index (INX) rose 3.4% to close at 2,531.94. Meanwhile, the Nasdaq Composite Index (IXIC) closed at 6,738.86, climbing 4.3% or 275.35 points. A total of 8.68 billion shares were traded on Friday, lower than the last 20-session average of 9.14 billion shares. Advancers outnumbered decliners on the NYSE by 7.64-to-1 ratio. On the Nasdaq, advancers had an edge over decliners by 6.22-to-1 ratio. The CBOE VIX decreased 16% to close at 21.38.
How Did the Benchmarks Perform?
The Dow ended in positive territory reversing previous day’s losses. Notably, all 30 components of the blue-chip index finished in the green. The S&P 500 closed in positive territory, also reversing the previous day’s losses. The Technology Select Sector SPDR (XLK) and Communications Services Select Sector SPDR (XLC) are two major gainers with 4.4% and 4.3%, respectively. Notably, all 11 sectors of the benchmark index closed in the green.
The tech-heavy Nasdaq Composite also ended in the green, more than compensating for its previous day’s loss due to strong performance by FAANG stocks. Shares of Facebook Inc. (FB - Free Report) and Netflix Inc. (NFLX - Free Report) surged 4.7% and 9.7%, respectively. Facebook carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
Robust Labor Market Data for December
On Jan 4, the Department of Labor reported non-farm job additions for the month of December 2018 were 312,000, the highest level since February 2018. The figure was also higher than the consensus estimate of 183,000. Moreover, November’s job addition was revised to 176,000 from 155,000 and October’s job addition increased to 274,000 from 237,000.
Unemployment rate increased slightly from 3.7% to 3.9% owing to 419,000 new workers entered the workforce and the labor force participation rate increasing to 63.1%. Labor force participation rate was up 0.2% sequentially and 0.4% year over year. For 2018, as a whole, total job addition was 2.6 million, highest since 2015.
Moreover, wage rate increased 0.4% in December, higher than the consensus estimate of 0.3%. Wage rate soared 3.2% year over year in December. The average work week rose 0.1 hour to 34.5 hours.
Powell Signals Dovish Monetary Stance by the Fed
On Jan 4,at the American Economics Association meeting in Atlanta, Fed Chairman Jerome Powell said that the Fed will be closely watching how the economy performs in 2019 before taking any rate hike decisions. The central bank will adjust interest rate if it witnesses any sort of unexpected fluctuations in the U.S. economy. The Fed will also reconsider its balance sheet reduction policy in order to keep interest rate market friendly.
Positive Developments on Trade War Front
During Jan 7-8, high level delegations of both the United States and China are scheduled meet in order to discuss a possible trade deal. President Trump also tweeted that he is hopeful of a possible solution to the trade tussle with China.
Notably, on Dec 1, U.S. President Donald Trump and his Chinese counterpart Xi Jinping reached an initial agreement to find a permanent solution to the trade-related conflict between the two countries. The truce will be valid for the next 90 days during which the two countries will try to solve bilateral trade conflicts.
The first week of January was a relatively a better one for Wall Street. The Dow rose 0.5%. The S&P 500 and Nasdaq Composite gained 1% and 1.6%, respectively. Strong economic data, Powell’s hint of softer monetary stance by the Fed in 2019 and some positive developments on the trade war front acts as catalysts for investors.
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