US stocks ended the week higher, but it was hardly smooth sailing for investors as the markets remained choppy for a second week in a row.
The Dow Jones Industrial Average posted a double-digit loss on Tuesday and each of the major indices fell by more than 1 percent on Wednesday. Markets recovered somewhat on Thursday, but only after a mid-session plunge.
The markets closed the week on an upbeat note after the US economy added more jobs than expected last month.
At Friday’s close, the Dow ended 132.55, or 0.88 percent, higher for the week at 15,248.12; the broad-based S&P 500 rose 12.64, or 0.78 percent, to 1,643.38; and the NASDAQ Composite Index added 13.31, or 0.39 percent, to 3,469.22.
“It has been a very volatile week,” Hugh Johnson of Hugh Johnson Advisors said.
The market’s gyrations could be explained by the trove of economic data released, which included plenty of surprises.
For example, Wednesday’s release from payroll firm ADP showed the US private sector added just 135,000 jobs last month, far less than the 157,000 jobs expected.
However, Friday’s job report showed that the US economy added 175,000 jobs in the same period, beating analysts’ forecasts.
Markets had been betting on a weaker jobs report on Friday, Michael James of Wedbush Morgan Securities said. The report sent investors scurrying.
“When the data goes counter to where people are positioned, the market is going to go counter to where those positions are,” he said.
James expects the volatility to continue in the coming weeks in light of the mixed economic outlook and low trading volume during the summer months.
Stocks moved last week “in lockstep with the news,” Johnson said.
That has not always been the case. Until recently, market watchers commonly characterized investors’ philosophy as being “bad news is good news” because weak economic reports meant the US Federal Reserve would continue its aggressive bond-buying program.
However, the Fed in recent weeks has signaled that it expects its bond-buying program to be tapered in the foreseeable future.
The market is “acknowledging that tapering will begin in six months or earlier,” Standard & Poor’s chief investment strategist Sam Stovall said.
As a result, “the market has gone through a painful metamorphosis” to being “fundamentally driven rather than liquidity driven,” he said.
Exactly when the Fed scales back the program is of keen interest to both stock market and bond markets, which have retreated as speculation about the program grows.
Several analysts said Friday’s job report would not hasten the Fed’s timing.
The report “reflects improvement in the economy, but not so much improvement as to suggest the Fed will alter its policy course,” Briefing.com analyst Patrick O’Hare said.
The next big Fed meeting is not until June 18 and June 19.
Next week will see releases on retail sales, industrial production and the producer price index.
Johnson spotlighted the producer price index as especially important.
“Inflation is getting too low, and if inflation migrates toward deflation, we’re going to have big problems,” Johnson said.