U.S. Stocks Climb Well Off Worst Levels But Close Modestly Lower

(RTTNews) - After falling sharply early in the session, stocks showed a substantial recovery attempt over the course of the trading day on Friday. The major averages climbed well off their worst levels of the day but still ended the session in negative territory.

The Dow fell by more than 230 points at its lows of the session but ended the day down just 43.88 points or 0.2 percent at 26,922.12. The Nasdaq edged down 8.44 points or 0.1 percent to 8,161.79 and the S&P 500 dipped 5.41 points or 0.2 percent to 2,990.41.

Despite pulling back off Wednesday's record closing highs, the major averages still moved to the upside for the week. The Dow jumped by 1.2 percent, while the Nasdaq and the S&P 500 surged up by 1.9 percent and 1.7 percent, respectively.

The early pullback by stocks came following the release of a closely watched Labor Department report showing a substantial reacceleration in the pace of U.S. job growth in the month of June.

The report said employment surged up by 224,000 jobs in June after edging up 72,000 jobs in May. Economists had expected employment to increase by about 160,000 jobs.

While the data points to a rebound in the labor market following the weakness seen in May, the report dampened investor hopes for a near-term interest rate cut by the Federal Reserve.

Andrew Hunter, Senior U.S. Economist at Capital Economics, said the strong jobs data would seem to "make a mockery" of market expectations the Fed will cut interest rates by up to 50 basis points later this month.

"Employment growth is still trending gradually lower but, with the stock market setting new records and trade talks back on (for now at least), the data support our view that Fed officials are more likely to wait until September before loosening policy," Hunter said.

Despite the stronger than expected job growth, the report said the unemployment rate inched up to 3.7 percent in June from 3.6 percent in May. The unemployment rate had been expected to hold steady.

The uptick in the unemployment rate reflected an increase in the size of the labor force, which expanded by 335,000 people compared to the 247,000-person jump in the household survey measure of employment.

Selling pressure waned over the course of the session, however, as traders seemed to realize a strong economy could continue to push stocks higher even without a rate cut by the Fed.

Sector News

Most of the major sectors ended the day showing only modest moves, although significant weakness remained visible among pharmaceutical stocks.

Reflecting the weakness in the pharmaceutical sector, the NYSE Arca Pharmaceutical Index slumped by 1.5 percent after ending the previous session at a record closing high.

Biotechnology stocks also showed a notable move to the downside on the day, dragging the NYSE Arca Biotechnology Index down by 1.3 percent.

On the other hand, considerable strength emerged among brokerage stocks, as reflected by the 1.1 percent gain posted by the NYSE Arca Broker/Dealer Index.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher amid light trading activity on Friday. Japan's Nikkei 225 Index and China's Shanghai Composite Index both edged up by 0.2 percent.

Meanwhile, the major European markets moved to the downside on the day. While the U.K.'s FTSE 100 Index slid by 0.7 percent, the French CAC 40 Index and the German DAX Index both fell by 0.5 percent.

In the bond market, treasuries pulled back sharply on the heels of the stronger than expected jobs data. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 9.5 basis points to 2.048 percent.

Looking Ahead

The outlook for interest rates is likely to remain in focus next week, as Fed Chairman Jerome Powell sits down for two days of Congressional testimony and the central bank releases the minutes of its latest monetary policy meeting.

Closely watched reports on consumer and producer price inflation could also have an impact on perceptions of the likelihood of an interest rate cut.