Stocks Soar On Non-Farm Payrolls Report

Quantitative easing fans were relieved by Friday’s better-than-expected May non-farm payrolls report from the Department of Labor’s Bureau of Labor Statistics. The report was not strong enough to motivate the Federal Reserve to accelerate the phase-out of its bond-buying program. As a result, stocks headed skyward on the news. On the other hand, the report was good enough to keep the “glass half full” crowd feeling optimistic about the slow economic recovery.

The report indicated that non-farm payrolls increased by 175,000 in May, beating economists’ expectations for an increase by 167,000 new jobs. The unemployment rate ticked up from 7.5 percent to 7.6 percent. Many saw the up-tick in the unemployment rate as a result of the fact that the labor force participation rate increased from 63.3 percent in April to 63.4 percent in May. However, the report described the unemployment rate as “essentially unchanged” and the labor force participation rate as “little changed”.

The Dow Jones Industrial Average (DIA) jumped 207 points to finish Friday’s trading session at 15,248 for a 1.38 percent advance. The S&P 500 (SPY) finished Friday’s session with 1.28 percent surge to close at 1,643.

The Nasdaq 100 (QQQ) climbed 1.37 percent to close at 3,990. The Russell 2000 (IWM) rose 0.83 percent to 987.

In other major markets, oil (USO) climbed 1.61 percent to close at $34.16.

On London’s ICE Futures Europe Exchange, July futures for Brent crude oil advanced by $1.20 (1.16 percent) to $104.53/bbl. (BNO).

June gold futures declined by $34.30 (2.42 percent) to $1,381.40 per ounce (GLD).

Transports were in warp drive on Friday, with the Dow Jones Transportation Average (NYSEARCA:IYT) surging by 1.38 percent.

European stock indices held near the breakeven level on Friday until the release of the May non-farm payrolls report at 8:30 EDT, at which point there was a steady advance (VGK). The Euro STOXX 50 Index finished Friday’s session with a 1.79 percent jump to 2,724 – popping back above its 50-day moving average of 2,713. Its Relative Strength Index is 45.73 (FEZ).

Japanese stocks managed to recover from a significant decline on Friday when the yen strengthened to less than 96 per dollar. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (FXY). The yen subsequently weakened to 97 per dollar, allowing Japanese stocks to mitigate their losses. The Nikkei 225 Stock Average declined 0.21 percent to 12,877 (EWJ).

In China, stocks declined for the seventh consecutive day as investors began to worry about Saturday’s report on the nation’s trade deficit while still being haunted by the downbeat manufacturing PMI reports from both the government and HSBC. The financial sector led Friday’s decline on volume which was approximately 10 percent thinner than average. The Shanghai Composite Index sank 1.33 percent to 2,210 (FXI). Hong Kong’s Hang Seng Index dropped 1.21 percent to 21,575 (EWH).

Technical indicators reveal that the S&P 500 climbed further above its 50-day moving average of 1,606 after closing at 1,643 – as bears hope that we could be watching the formation of a double-top pattern on the chart, which would signal a decline. Its Relative Strength Index rose from 47.60 to 54.44. The MACD remains below the signal line, providing some support for the likelihood of a decline. Nevertheless, the MACD is on an upward trajectory, as emphasized by the MACD histogram.

For the day, all sectors were solidly positive, with the industrial and consumer discretionary sectors taking the lead with gains of 1.88 percent and 1.83 percent, respectively.

Consumer Discretionary (XLY): +1.83%

Technology: (XLK): +0.92%

Industrials (XLI): +1.88%

Materials: (XLB): +0.93%

Energy (XLE): +1.26%

Financials: (XLF): +1.73%

Utilities (XLU): +0.61%

Health Care: (XLV): +0.92%

Consumer Staples (XLP): +0.94%

Bottom line: The better-than-expected May non-farm payrolls report gave quantitative easing fans just what they wanted: a positive report which was not so strong that it would hasten the demise of the Fed’s bond-buying program.

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