Stock Market Rallies After Strong Jobs Report

NEW YORK (AP) -- Stocks are rallying Friday after a strong report on the U.S. job market helped ease Wall Street's worries about a possible recession.

The S&P 500 was 1% higher in early trading and on pace for a third straight winning week. The Dow Jones Industrial Average was up 372 points, or 1.1%, at 33,433, as of 9:45 a.m. Eastern time, while the Nasdaq composite was 1% higher.

They got a boost after a report showed employers unexpectedly accelerated their hiring last month. It's the latest signal that the job market remains remarkably solid despite much higher interest rates, and it offers a big pillar of support for an economy that's begun to slow.

Perhaps more importantly for markets, increases for workers' pay also slowed even as hiring strengthened.

While that may discourage workers trying to keep up with prices at the register, investors believe slower wage gains should mean less upward pressure on inflation across the economy. That in turn could allow the Federal Reserve to take it easier on its hikes to interest rates, which are aimed at lowering inflation by slowing the economy and have already caused damage in the banking and manufacturing industries.

The unemployment rate also rose by more than expected last month, moving up to 3.7% from a five-decade low. That implies a bit more slack in the job market and seems to conflict with the gangbusters hiring numbers, whose data comes from a separate survey.

"The reality is probably somewhere in between," said Brian Jacobsen, chief economist at Annex Wealth Management.

"One thing that is striking is that if you compare aggregate payrolls today to the pre-COVID trend, we still have more than a four million job hole to fill-in," he said. "COVID led to strange times, a strange recovery and an even stranger slowdown."

Following the report, traders were largely expecting the Fed to hold interest rates steady at its next meeting in two weeks. If it does, that would be the first time it hasn't hiked rates in more than a year.

A pause on rate hikes would offer breathing room for an economy that's already seen manufacturing contract sharply for months.

Higher rates have also hurt many smaller and mid-sized banks because their customers have pulled deposits in search of higher interest by money-market funds. The Fed's furious flurry of hikes, meanwhile, has also hurt the value of investments banks made when rates were low.

Several high-profile bank failures since March have shaken the market, leading Wall Street to hunt for the next possible weak links. Several of those under heavy scrutiny rallied following the jobs report. PacWest Bancorp rose 5.8%, for example, to trim its loss for the year to roughly 69%.

But Fed officials have also warned recently that a pause on rate hikes in June wouldn't necessarily mean the end to hikes.

Traders are increasingly expecting the Fed to follow up a June pause with a July hike to interest rates, according to data from CME Group. That helped push Treasury yields higher.

The yield on the 10-year Treasury climbed to 3.63% from 3.60% late Thursday. It helps set rates for mortgages and other important loans.

The two-year Treasury yield, which moves more on expectations for Fed action, rose to 4.41% from 4.34%.

Also helping to support Wall Street was the Senate giving final approval late Thursday to a deal that will allow the U.S. government to avoid a potentially disastrous default on its debt.

The move was widely expected by investors, and the deal moves next to President Joe Biden for his signature.

Stock markets abroad were also mostly higher.

In Europe, France's CAC 40 jumped 1.7%, and Germany's DAX returned 1.1%.

In Asia, Hong Kong's Hang Sang soared 4%, and Japan's Nikkei 225 rose 1.2%.