A strong nonfarm payroll report helped benchmarks snap their four-day losing streak on Friday. More importantly, strategists believed that better-than-expected jobs data did not completely rule out chances of further economic stimulus from the central bank. The Dow had its best day since June 29, while the S&P 500 was at its highest level since May. Friday’s gains also ensured that benchmarks finished in the green for the week; despite registering only paltry gains.
The Dow Jones Industrial Average (DJI) gained 217.29 points or 1.7% and ended at 13,096.17. The Standard & Poor 500 (S&P 500) jumped 1.9% to finish Friday’s trading session at 1,390.99. The tech-laden Nasdaq Composite Index surged a robust 2% to close 58.13 points higher at 2,967.90. The fear-gauge CBOE Volatility Index (VIX) slumped almost 11% to settle at 15.64, reflecting easing investor fears. Consolidated volumes on the New York Stock Exchange, NYSE and Nasdaq was 6.8 billion shares. Advancing stocks were far ahead of decliners. For 80% of stocks that gained, 17% stocks closed in the red.
The Dow registered its best one-day performance since late June, rebounding to the psychological 13, 000 level. This level is a key indicator for the markets as it boosts investor confidence. Further, Friday’s gains helped the Dow close in the green for the week.
For the blue-chip index, Verizon Communications Inc. (NYSE:VZ) was the only stock among the 30 Dow components that ended in negative territory, dropping 0.4%, while McDonald's Corp. (NYSE:MCD) ended flat. Among the remaining 28 components, Alcoa, Inc. (NYSE:AA), Bank of America Corporation (NYSE:BAC), Cisco Systems, Inc. (NASDAQ:CSCO), General Electric Company (NYSE:GE), Hewlett-Packard Company (NYSE:HPQ), Kraft Foods Inc. (NASDAQ:KFT), Procter & Gamble Co. (NYSE:PG), United Technologies Corp. (NYSE:UTX) led the gains moving up 2.3%, 3.5%, 3.9%, 2.1%, 4.1%, 4.0%, 3.1% and 3.2%, respectively.
During the earlier part of last week, investors adopted a wait and watch stance as the Federal Open Market Committee held the crucial two-day meet. However, the meeting concluded with no announcements on quantitative easing. The disappointment was intensified a day later when European Central Bank President Mario Draghi failed to live up to his pledge of doing “whatever it takes” to preserve the Euro-zone. While these key events dampened investor sentiment, nonfarm payroll data easily reversed the markets’ losing streak.
The U.S. Bureau of Labor Statistics announced that total nonfarm payroll employment jumped 163,000 in July. This was a significant jump from the addition of 64, 000 jobs in June (revised downwards from the original level of 80, 000). The figure was also clearly ahead of consensus estimates that projected the addition of 99, 000 jobs. Professional and business services, food services and drinking places, and manufacturing reported higher employment. Professional and business services employment jumped 49,000 while employment in food services and drinking places and manufacturing were up by 29, 000 and 25, 000, respectively, in July.
Investors received much needed relief from better-than-expected nonfarm payroll data. Incidentally, the robust jobs data has not affected the prospects of the third round of bond buyback by the government. The central bank has suggested that their eyes are on the jobs number which one of the prime criteria about the necessity of economic measure. However, the general sentiment is that the rise in the unemployment rate to 8.3% from 8.2% has kept the door open for the central bank to decide on a third round of quantitative easing.
Separately, the Institute for Supply Management released its data about economic activity in the non-manufacturing sector. According to the report: “The NMI registered 52.6 percent in July, 0.5 percentage point higher than the 52.1 percent registered in June. This indicates continued growth this month at a slighter faster rate in the non-manufacturing sector”. This is marginally higher than consensus estimates of a reading of 52.2.
Nonfarm payroll data was not only responsible for Friday’s gains, but also helped benchmarks close in the green for the week. The Dow, S&P 500 and Nasdaq ended the week with gains of 0.2%, 0.4% and 0.3%, respectively. The Dow notched up a record in this regard too, enjoying its longest weekly stretch of gains this year.