Wall Street claws back week’s losses thanks to strong jobs report

US stocks rallied on Friday after a surprisingly strong report on the US job market raised optimism about the economy.

The S&P 500 climbed 0.9 per cent and got close to its all-time high set on Monday.

The Dow Jones Industrial Average rose 341 points, or 0.8 per cent, to set its own record, while the Nasdaq composite clambered 1.2 per cent higher.

Leading the way were banks, airlines, cruise-ship operators and other companies whose profits can benefit the most from a stronger economy where people are working and better able to pay for things.

Norwegian Cruise Line steamed 4.9 per cent higher, JPMorgan Chase rose 3.5 per cent and the small companies in the Russell 2000 index gained 1.5 per cent.

They helped stock indexes claw back losses from earlier in the week, caused by worries that worsening tensions in the Middle East could lead to disruptions in the global flow of oil.

Crude prices rose again on Friday, but the moves were more modest than earlier in the week, as the world continued its wait to see how Israel will respond to Iran’s missile attack.

In the meantime, the strength of the US economy reclaimed its spot as the top mover of markets.

Treasury yields soared in the bond market after the US government said employers added 254,000 more jobs to their payrolls last month than they cut. That was an acceleration from August’s hiring pace of 159,000 and blew past economists’ forecasts.

It was a “grand slam” of a report, according to Lindsay Rosner, head of multi-sector investing within Goldman Sachs Asset Management.

She said policy makers at the Federal Reserve, who have been trying to pull off the difficult feat of keeping the economy humming while getting inflation under control, “must be smiling”.

Friday’s report capped a week of mostly encouraging data on the economy, helping to allay one of Wall Street’s top questions: Can the job market continue to hold up after the Federal Reserve earlier kept interest rates at a two-decade high?

Before Friday’s jobs report, the general trend had been a slowdown in hiring by US employers.

That is not surprising given how hard the Fed pressed the brakes on the economy through higher rates in order to stamp out high inflation.

But Friday’s blowout numbers bolstered hope that the US economy will keep growing, particularly now that the Federal Reserve has begun cutting interest rates to give it more juice.

The Fed last month lowered its main interest rate for the first time in more than four years and indicated more cuts will arrive through next year.

Friday’s jobs report was so strong that it pushed traders to abandon bets that the Federal Reserve will deliver another larger-than-usual cut to interest rates at its next meeting.

They are now forecasting zero chance for a cut of half a percentage point, according to data from CME Group. Just a week ago, they were saying it was better than a coin flip’s chance.

“This report tells the Fed that they still need to be careful as a strong labour market along with sticky housing/shelter data shows that it won’t be easy to engineer meaningfully lower inflation from here in the nearer term,” according to Scott Wren, senior global market strategist at Wells Fargo Investment Institute.

At Bank of America, economist Aditya Bhave expects the Federal Reserve to stop cutting its target for the federal funds rate when it hits a range of three per cent to 3.25 per cent.

That is a quarter of a percentage point higher than the bottom that he was earlier forecasting. The federal funds rate is currently sitting in a range of 4.75 per cent to five per cent.

Such diminished expectations for future cuts sent the yield on the two-year Treasury shooting up to 3.93 per cent from 3.71 per cent late on Thursday. The 10-year yield jumped to 3.97 per cent from 3.85 per cent.

The forced rethink about how low rates will ultimately go hurt stocks of home builders, real-estate owners and other companies that benefit from easier mortgage rates.

DR Horton, PulteGroup and Lennar all sank at least 2.5 per cent for three of the biggest losses in the S&P 500.

Home Depot slipped 0.8 per cent and was the biggest single reason the Dow Jones Industrial Average lagged other indexes. During the day, the Dow went from an early gain of 300 points to a modest loss and back to a big gain.

All told, the S&P 500 rose 51.13 points to 5,751.07. The Dow gained 341.16 to 42,352.75, and the Nasdaq climbed 219.37 to 18,137.85.

Also on Friday, some 45,000 dockworkers at East and Gulf coast ports returned to work after their union reached a deal to suspend its three-day strike until January 15 to provide time to negotiate a new contract.

That helped calm worries that a lengthy strike could have pushed up on inflation and dragged on the economy.

In the oil market, the price for a barrel of Brent crude, the international standard, rose 0.6 per cent to 78.05 US dollars (£59.47) per barrel to bring its gain for the week to 9.1 per cent.

A barrel of benchmark US crude rose 0.9 per cent to 74.38 dollars (£56.67), up from roughly 68 dollars (£51) at the start of the week.

In stock markets abroad, indexes rose across much of Europe following the strong jobs report from the world’s largest economy.

In Asia, Hong Kong’s Hang Seng jumped 2.8 per cent in its latest sharp swerve.

It soared a bit more than 10 per cent over the week on excitement about a flurry of recent announcements from Beijing to prop up the world’s second-largest economy.

Stan Choe, Associated Press