US stocks moved higher for the second straight week as a solid US jobs report spurred confidence in the economic recovery.
Markets closed out a holiday-shortened week on a high after the US Department of Labor on Friday reported that last month’s jobs growth came in at 195,000, well above the consensus estimate of 166,000 jobs.
The jobs report revived talk that the US Federal Reserve would soon taper its US$85 billion per month bond-buying program. The yield on US Treasuries spiked to levels not seen since August 2011.
In recent weeks, the specter of less Fed stimulus and higher bond yields has been a damper on stocks, prompting talk that “good news” like better economic data was in reality “bad news” because it meant less Fed support.
Yet Friday’s performance suggested the market’s view may be evolving. Analysts cautioned against reading too much into a single day’s trade, particularly given that many investors took vacation the day after the Independence Day holiday on Thursday.
However, even as bond yields soared on Friday, US stock indices also went higher, suggesting less fear about the Fed taper.
The Dow Jones Industrial Average put on a robust 226.24, or 1.52 percent, this week to reach 15,135.84, while the broad-based S&P 500 jumped 25.61, or 1.59 percent, to 1,631.89 and the tech-rich NASDAQ Composite Index surged 76.13, or 2.24 percent, to 3,479.38.
“What we’re seeing here is the stock market separating itself from the risk associated with the bond market and with other investments around the world,” Barber Financial Group financial adviser Bud Kasper said.
However, Kenjol Capital Managemen portfolio manager David Levy said the big question will be whether yields stay in their current range, or continue to rise and drag on both corporate investment and the housing recovery because of higher interest rates.
The yield on the 10-year Treasury bonds on Friday rose to 2.72 percent, a gain of 9.7 percent over the week, while the 30-year bonds increased 5.1 percent to 3.68 percent.
“It’s very hard for the stock market to make meaningful progress higher in a period where rates are moving higher at the pace and magnitude over which they have in the last several weeks,” Levy said.
Higher bond yields are not the only cloud on the horizon. Investors are also skittish over the political crisis in Egypt, which has helped propel oil prices higher.
The eurozone’s travails also returned to center stage after resignations of a pair of top Portuguese officials revived concerns about the viability of the ruling coalition.
European Central Bank President Mario Draghi on Thursday pledged that the ECB would keep rates low for “as long as necessary.”
Yet analysts said that the eurozone’s problems can also boost US markets, which are seen as comparatively well-positioned.
“Our thesis is that the US is going to lead the rest of the world out of the crisis and we’re going to be a very strong player for the next five or six years,” Greg Peterson at Ballentine Partners said.
Last week’s gains were led by consumer discretionary and technology stocks, both of which are well-positioned for a US economic recovery that prompts more consumer spending.
The utilities sector, which is known for paying a steady dividend, was the only one of the 10 S&P 500 sectors to finish lower. Analysts attributed the decline to the rise in bond yields, which has dulled the appeal of dividend stocks.
Investors next week will study minutes due on Wednesday from the Fed’s policy meeting last month for clues about its plans for tapering,
Analysts are also closely watching the unofficial start of corporate earnings season tomorrow, with Alcoa reporting after the bell closes.
The hope is not only for improved profits, but higher revenues that would suggest companies are switching from cost-cutting mode to growth mode.