Dow, S&P 500 both log new records despite weak April jobs report

How are stock benchmarks performing?

• The Dow Jones Industrial Average
  DJIA,
  +0.66%
  closed up 229.23 points to 34,777.76, a gain of 0.7%, establishing an intraday record high at 34,811.39. It posted its 24th record close of 2021.
• The S&P 500 index
  SPX,
  +0.74%
  added 30.98 points, or 0.7%, to end at 4,232.60, carving out its own intraday all-time high at 4,238.04.
• The Nasdaq Composite Index
  COMP,
  +0.88%
  gained 119.39 points to about 13,752.24, a gain of 0.9%,

On Thursday, the Dow
DJIA,
+0.66%
added 318.19 points to reach a record close of 34,548.53; a gain of 0.9%, the S&P 500
SPX,
+0.74%
moved up 34.03 points, or 0.8%, at 4,201.62; while the Nasdaq Composite Index
COMP,
+0.88%
traded up 50.42 points, or 0.4%, to 13,632.84, ending a streak of four straight losses.

For the week, the Dow ended up 2.7%, snapping a two-week losing streak; the S&P 500 rose 1.2% for the week, marking its second straight gain; while the Nasdaq Composite booked a weekly slump of 1.5%, representing its third consecutive weekly skid.

What’s driving the market?

Investors bet that the weak monthly employment report would keep the easy-money policies of the Federal Reserve intact. Technology stocks outperformed with Microsoft
MSFT,
+1.09%
and Tesla
TSLA,
+1.33%
both up more than 1%, while Netflix
NFLX,
+0.86%,
Alphabet
GOOGL,
+0.62%

GOOG,
+0.73%
and Apple
AAPL,
+0.53%
all registered gains.

“Put differently, the market is saying ‘bad news is good news’ for the stock market bubble,” wrote Chris Senyek, chief investment strategist at Wolfe Research, in a daily note.

The U.S. created 266,000 new jobs in April, on a seasonally adjusted basis, well below forecasts ranging from a gain of 755,000 to 1.25 million. The unemployment rate rose to 6.1% in April from 6%, even as average hourly wages rose 21 cents to $30.17. On top of that, gains in March were lowered to 770,000 from 916,000, injecting at least some uncertainty into the pace of the rebound from COVID.

“We knew it would be a long road back to the recovery,” U.S. Treasury Secretary Janet Yellen said at a Friday news conference. “That’s why the legislation provided lasting support rather than just a few months of relief. We knew this would not be a 100-day battle.”

The jobs report assuaged recent doubts about the Fed’s commitment to keep interest rates low and maintain its bond buying program even though inflation is seen rising this year as the economy recovers from the pandemic.

“One thing is clear that the loose monetary policy isn’t going anywhere soon,” wrote
Naeem Aslam, chief market analyst at AvaTrade in a note after NFP.

Speaking with Bloomberg TV after the Friday jobs report, Minneapolis Fed President Neel Kashkari said the surprise in the data shows the importance of basing monetary policy on outcomes, not forecasts.

“For all those people who have been saying ‘oh my gosh, the Fed needs to normalize quantitative easing,’ today’s job report is just an example of—we have a long way to go,” Kashkari said, in the interview.

However, the Wolfe Research’s Senyek doesn’t see the Friday report altering the trajectory for inflation. “This morning’s employment report has no impact on our belief that inflation readings are going to come in hotter-than-expected in the weeks ahead,” Senyek wrote.

“First, while pandemic-related stimulus payments and unemployment benefits are desperately needed by some Americans, we believe that recent fiscal measures have incented others not to return to the workforce over the near term,” he said.

Friday’s jobs report comes after weekly initial unemployment benefit claims in the U.S. fell to 498,000 for first time in pandemic era in data published Thursday.

Michael Hewson, chief market analyst at CMC Markets, said that jobs picture was befuddling compared with other healthy economic readings but does reinforce views that the recovery from the viral outbreak will be an uneven one.

“As Fed chair Jay Powell indicated only recently, one decent set of jobs numbers does not a recovery make, and today’s surprise miss is a timely reminder of that,” Hewson wrote. “It’s also a timely reminder to investors to never assume anything when it comes to financial markets and more importantly human incentives.”  

The 10-year Treasury note yield
TMUBMUSD10Y,
1.577%
briefly fell to around 1.50%, helping to create a runway for technology stocks that tend to be sensitive to bond yields.

U.S. stock indexes have been mostly advancing in the past month, seeing record highs, driven by evidence of improvement in the economy and by strong results from American corporations reporting first-quarter earnings.

S&P 500 index company earnings are now estimated to have increased 50.4% in the first quarter from a year ago, which would be the highest growth rate since the first quarter of 2010, according to Refinitiv data.

Shares of tech companies, in particular, had taken it on the chin after prospering during the lockdown protocols in place last year to combat the coronavirus pandemic. Investors have been rotating their investments into assets seen as performing better during the economic recovery, including energy, financials, industrials, materials and transportation stocks.

Meanwhile, the healthcare sector remains in focus after President Joe Biden’s administration has advocated waiving intellectual property rights to potentially enable companies in developing countries to manufacture their own COVID vaccines. Companies like Pfizer,
PFE,
+1.00%
AstraZeneca
AZN,
+0.62%,
BioNTech 
BNTX,
+9.35%
 Johnson & Johnson
JNJ,
+0.45%
 and Moderna
MRNA,
+1.65%
have seen their stocks fall as a result this week.

Pfizer and its German partner BioNTech SE also said Friday they have initiated submission of a Biologics License Application (BLA) with the U.S. Food and Drug Administration for full approval of their COVID-19 vaccine in individuals 16 years of age and older.

Which companies are in focus?

• Shares of Cigna Corp. CI gained 1.7% Friday, after the health-services company reported first-quarter profit and revenue that rose above expectations, as total customer relationships grew 14% and pharmacy customers increased 28%. 
• USA Today parent Gannett Co. Inc. GCI reported Friday a wider net loss on revenue that fell more than some analysts expected, citing negative impacts from the COVID-19 pandemic as well as “general trends” hurting the publishing industry. Shares fell 0.9%.
• Spectrum Brands Holdings Inc. SPB posted stronger-than-expected earnings for its fiscal third quarter Friday, and raised its fiscal 2021 guidance. Its shares climbed 3.4%.
• Shares of DraftKings Inc. DKNG declined nearly 7% Friday, after the sports betting company reported a first-quarter loss that more than quadrupled and was wider than expected, but revenue that nearly tripled to beat forecasts and raised its full-year outlook. 
• Bank stocks staged a turnaround after initially slumping Friday, as Treasury yields sank in the wake of disappointing government jobs data. Shares of JPMorgan Chase & Co.
  JPM,
  +0.34%,
  Bank of America Corp.
  BAC,
  +0.40%,
  and Citigroup Inc.
  C,
  +0.40%,
  all closed higher, while Wells Fargo & Co.
  WFC,
  -0.19%
  finished down 0.2%. The SPDR Financial Select Sector ETF
  XLF,
  +0.53%
  closed up 0.5%.
• Jefferies upgraded shares of the new Tilray Inc. TLRY to buy from underperform on Friday, and said the recent merger of the company with rival Aphria Inc. Shares closed up over 14%.
• Shares of Roku Inc.
  ROKU,
  +11.55%
  jumped 12% Friday after the streaming company late Thursday delivered better-than-expected results for its first quarter and issued an upbeat outlook for the current period.
• Shares of Nikola Corp.
  NKLA,
  +13.41%
   rallied 13.4% Friday, helping the stock to snap a 8-session losing streak, after the electric vehicle maker reported a narrower-than-expected first-quarter loss while reporting no revenue, which was in line with forecasts.

How are other assets faring?

• In Europe, the Stoxx Europe 600 SXXP closed 0.9% higher and London’s FTSE 100 UKX advanced 0.8%.
• The 10-year Treasury note yield TMUBMUSD10Y added 1.5 basis points to 1.576%.
• The greenback slumped 0.8% lower, based on the ICE U.S. Dollar Index DXY.
• Gold futures GC00 added $15.60, or 0.9%, to settle at $1,831.30 an ounce, on Comex, marking its highest finish in three months. U.S. crude futures CL.1 lcrude for June delivery tacked on 19 cents, or 0.3%, to settle at $64.90 a barrel on the New York Mercantile Exchange, leaving front-month prices for the U.S. benchmark up 2.1% for the week on the New York Mercantile Exchange.
• In Asian trade, Hong Kong’s Hang Seng Index HSI edged 0.1% lower. China’s Shanghai Composite SHCOMP closed 0.7% lower, while Japan’s Nikkei 225 NIK rose less than 0.1%.