Stocks posted their best day since mid-May after record-setting job creation in May gave investors further hope that the worst of the coronavirus pandemic is over and the economy is beginning to recover.
The Dow Jones industrial average surged 829.16 points to close at 27,110.98 after the government said that U.S. employers added 2.5 million workers to their payrolls last month, the largest increase ever. Economists were expecting them instead to cut another 8 million jobs amid the ongoing fallout from the response to the deadly outbreak.
The Standard & Poor's 500 advanced 2.6% to finish at 3,193.93, its best day since May 18 and leaving it within 6% from its all-time high set in February after earlier being down nearly 34%. Friday marked its eighth gain in the past 10 trading days. The Nasdaq Composite jumped 2.1% to end at 9,814.08, nearing a record.
For the week, the blue-chip Dow rose 6.8%. The S&P 500 index climbed 4.9% and the Nasdaq added 3.4%.
Stocks have been on a tear on hopes that economic growth can resume. While economists cautioned that it’s just one month of data and could be giving false hope, the report gives credence to the building optimism among stock investors that the economy can recover relatively quickly from its current hole. That hope has been a big reason for the better than 40% rally for the S&P 500 since late March.
"Today was a shocking jobs number. It’s very encouraging to see workers being recalled back by their employers," Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, an investment advisor, said in a note. "At 13.3%, we are still at a higher rate than any that we hit during the financial crisis in 2007-2009, but as long as that continues to move lower, it will show that the re-opening of the economy is proceeding smoothly."
In another show of increased confidence, the yield on the 10-year Treasury rose to 0.88% from 0.82% late Thursday. This area of the market was much earlier than stocks to give warning about the coming economic devastation from the coronavirus outbreak.
Now, the 10-year yield is close to its highest level since March, according to Tradeweb. It tends to move with investors’ expectations for the economy’s strength and inflation.
Stocks began their tremendous rally in late March after the Federal Reserve came to the rescue once again with promises of immense aid to keep markets running smoothly. Capitol Hill also agreed on unprecedented amounts of aid for the economy, which helped eliminate the worst-case scenario for many investors of a full-blown financial crisis.
More recently, it’s been hoped that growth can resume for the economy as states across the country and nations around the world relax lockdown restrictions meant to slow the spread of the virus. Even as horrific and historic data continued to come in on the job market and economy, stocks largely remained resilient in their climb.
If their optimism proves to be right, it wouldn’t be the first time. During past recessions, stocks have historically hit their bottom and turned upward months before the economy has. That’s because investors are setting stock prices now for where they see corporate profits heading months into the future.
The report provides additional confirmation for investors who are betting on a faster recovery of the economy, according to Charlie Ripley, senior investment strategist at Allianz Investment Management.
"At the very least, this report affirms that the economy is on the mend and employees are coming back to work after being temporarily unemployed," Ripley said in a note.
Half of the job gains in May were concentrated in the leisure and hospitality sector, which recouped 1.2 million jobs last month. To be sure, a handful of sectors continued to see job losses. The transportation industry continued to suffer from a decrease in travel with 19,000 job losses last month.
Continuing a recent trend, investors on Friday moved out of stocks that had been earlier winners in the weak, "stay-at-home economy" and into companies that would benefit most from growth.
Among the biggest stocks, energy producers, banks and industrial companies had the biggest gains. Their profits tend to be very closely tied to the strength of the economy.
Travel-related companies were also strong, after their stocks got pummeled early in the outbreak on worries that no one would want to fly or go onto a cruise ship for a long time. Security officers screened 391,882 people at U.S. airports on Thursday, the most since March 22. Year-over-year declines have moderated to 85% from 96% in mid-April.
American Airlines jumped 11.2%, tacking even more gains onto its 41.1% surge a day before when it said it would fly more of its regular U.S. schedule in a bet that fliers will return to the skies.
Norwegian Cruise Line rose 14.5%, and United Airlines added 8.5%.
Contributing: The Associated Press
This article originally appeared on USA TODAY: Dow: Stocks surge after surprise May job gains