Stocks Show Substantial Turnaround After Seeing Early Weakness - U.S. Commentary

(RTTNews) - After coming under pressure early in the session, stocks showed a substantial rebound over the course of the trading day on Friday. The turnaround lifted the Dow to its best closing level in almost four months, while the Nasdaq and the S&P 500 reached three-month closing highs.

The major averages ended the session just off their best levels of the day. The Dow climbed 107.66 points or 0.6 percent to 17,792.75, the Nasdaq advanced 44.69 points or 0.9 percent to 4,914.54 and the S&P 500 rose 13.04 points or 0.6 percent to 2,072.78.

For the week, the tech-heavy Nasdaq soared by 3 percent, while the Dow and the S&P 500 jumped by 1.6 percent and 1.8 percent, respectively.

The initial weakness on Wall Street came following the release of the Labor Department's closely watched monthly jobs report.

The report said non-farm payroll employment climbed by 215,000 jobs in March after jumping by an upwardly revised 245,000 in February. Economists had expected an increase of about 210,000 jobs.

Nonetheless, the Labor Department also said the unemployment rate inched up to 5.0 percent in March from 4.9 percent in February. The unemployment rate had been expected to remain unchanged.

The unexpected uptick by the unemployment rate came as more people entered the workforce, as the labor force jumped by 396,000 people while household employment increased by 246,000 people.

However, stocks rebounded following the release of a separate report from the Institute for Supply Management showing a stronger than expected rebound in manufacturing activity in March.

The ISM said its purchasing managers index climbed to 51.8 in March from 49.5 in February, with a reading above 50 indicating growth in the manufacturing sector. Economists had expected the index to inch up to 50.5.

With the bigger than expected increase, the index indicated the first month of growth in the manufacturing sector since last August.

The University of Michigan also reported a smaller than previously estimated drop in consumer sentiment in March, while the Commerce Department reported an unexpected decrease in construction spending in February.

James Smith, Developed Markets Economist at ING, said, "Taken as an aggregate, today's U.S. data is fairly encouraging and crucially, will give the data-dependent FOMC more confidence about the direction of the U.S. economy."

Sector News

Adding to the strong gains posted in the previous session, biotechnology stocks showed a significant move to the upside on the day. The NYSE Arca Biotechnology Index surged up by 2.7 percent to a two-month closing high.

Within the biotech sector, Regeneron (REGN) posted a standout gain after reporting positive late-stage trial results for the eczema treatment the company is developing with Sanofi (SNY).

Considerable strength also emerged among steel stocks, as reflected by the 1.5 percent gain posted by the NYSE Arca Steel Index. With the gain, the index reached its best closing level in almost six months.

On the other hand, energy stocks remained under pressure after seeing initial weakness, with a steep drop by the price of crude oil weighing on the sector. Crude for May delivery tumbled $1.55 to $36.79 a barrel.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plunged by 3.5 percent, the NYSE Arca Natural Gas Index slumped by 2 percent and the NYSE Arca Oil & Gas Index fell by 1.3 percent.

Airline stocks also saw notable weakness on the day, dragging the NYSE Arca Airline Index down by 1.3 percent. United Continental (UAL) posted a steep loss after being downgraded to Hold at Deutsche Bank.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Friday. Japan's Nikkei 225 Index plunged by 3.6 percent, while Hong Kong's Hang Seng Index tumbled by 1.3 percent.

The major European markets also came under pressure on the day. While the U.K.'s FTSE 100 Index dropped by 0.5 percent, the French CAC 40 Index and the German DAX Index slumped by 1.4 percent and 1.7 percent, respectively.

In the bond market, treasuries showed a lack of direction as traders digested the day's economic data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by less than a basis point to 1.792 percent.

Looking Ahead

The economic calendar for next week is relatively quiet, but traders are likely to keep an eye on reports on the trade deficit, service sector activity, and factory orders.

The Federal Reserve is also due to release the minutes of its latest monetary policy meeting, which could shed some light on the outlook for interest rates.