Dow on track for biggest gain since January, S&P 500 near bear market exit after May jobs report

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Stocks were sharply higher on Friday after monthly Labor Department data showed the U.S. economy added 339,000 jobs last month, far surpassing expectations set by Wall Street economists, who had expected 190,000 new jobs, according to a survey conducted by The Wall Street Journal.

The number of jobs created in March and April was also revised higher by roughly 93,000 combined. The jobs data beat Wall Street expectations by the widest margin since data for January were released on Feb. 3.

However, average hourly earnings rose 0.3%, roughly in line with expectations, and the unemployment rate rose to 3.7%. The wage-growth number helped to assuage investors’ fears that wage growth would continue to contribute to sticky inflation, market analysts said.

See: Jobs report shows big 339,000 gain in May. U.S. economy still going strong

Wall Street responded well to the data, which helped to assuage fears about a looming recession, since the labor market remains in strong shape, economists said. The report benefited the Dow in particular, which was on track to log its biggest point gain since Jan. 6, when it gained more than 700 points, according to Dow Jones Market Data.

The S&P 500, meanwhile, was trading near levels suggesting the bear market of the past year may be over. A close above 4292.436 would represent a 20% gain off the index’s October closing low of 3577.03 from Oct. 12, according to Dow Jones data.

As the Dow soared, the Nasdaq lagged as traders bet that the jobs data might push the Fed to raise interest rates in June or July, although Wall Street economists see a single hike in July as the most likely option.

“The report today continues to point to a soft landing for the economy and should keep market expectations for a July hike in play,” said Ellen Zentner, chief U.S. economist at Morgan Stanley. “We do not believe today’s report was strong enough to meet the bar for the Fed to hike in June, but raises the risk that the Fed could hike in July.”

The probability of a Federal Reserve interest rate hike in June rose to 36% after the jobs report, up from 20.4% earlier, according to the CME’s FedWatch tool.

“US stocks are holding onto gains after a complicated jobs report showed hiring isn’t ready to cool, layoffs are rising, and wage pressures seem to be easing,” Edward Moya, senior market analyst at Oanda, wrote in a note. “We are almost at the midpoint of the year and this economy is not showing strong signs that the second half of the year recession is coming.

Senior Fed officials said earlier this week that they would prefer to keep rates on hold when the Fed’s upcoming meeting ends on June 14, but they signaled openness to raising rates further later in the year. The Fed raised its policy rate by roughly 5 percentage points in 2022 and early 2023, the fastest pace since the 1980s.

Wall Street also cheered a U.S. Senate vote to raise the federal debt ceiling late Thursday which averted a government default. The bill is now on its way to President Joe Biden’s desk to be signed into law.

See: Senate passes debt-ceiling bill in 63-36 vote, sending it to Biden to get signed into law

Elsewhere, Asian markets rallied on news of the U.S. debt-ceiling deal agreement, with the Hong Kong Hang Seng up nearly 4%, after skirting bear-market territory earlier this week, following sluggish China economic data.

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