US: Stocks up as stronger job gains boost optimism for economy

[WASHINGTON] US stocks rallied to erase losses sparked by Britain's vote to exit the European Union, as stronger payroll growth calmed concerns that slowing momentum in the job market would weigh on the economy.

Friday's gains have restored roughly US$1.4 trillion of market value that was erased in the aftermath of the UK vote. Since the two-day selloff that began June 24, the S&P 500 Index has climbed on six of eight days.

The S&P 500 added 0.8 per cent to 2,115.57 at 9.48 am in New York, climbing to a one-month high and wiping out a decline for the week. The Dow Jones Industrial Average rose 147.04 points, or 0.8 per cent, to 18,042.92. The Nasdaq Composite Index advanced 0.9 per cent, also to the highest in a month. Trading volume in S&P 500 shares was 16 per cent above the 30-day average for this time of day.

"What this does is it alleviates worries that economy was stalling," said Quincy Krosby, a market strategist at Prudential Financial Inc., which oversees about US$1.2 trillion. "This is important for the equity market because if we see the 10-year yield move higher, it should put pressure on utilities which have done very well and perhaps give some more of the cyclical sectors a bounce this morning. It's solid, not stellar, but that's what the market has needed." A report today showed America's job market stirred to life after a two-month lull, as payrolls climbed by 287,000 in June, exceeding the highest estimate in a Bloomberg survey, after a revised 11,000 gain in May. The jobless rate rose to 4.9 percent as more people entered the labor force, while wages advanced less than projected.

The figures will help reassure policy makers that companies are staying the course on hiring in the face of weaker profits and overseas developments such as Britain's vote to leave the EU. Federal Reserve officials flagged concern over job creation at their last meeting, signaling fading urgency for the need to increase interest rates.

"The strength you're seeing in U.S. equities is a knee-jerk reaction to any kind of big number that comes out," said Stephen Carl, principal and head equity trader at Williams Capital Group LP. "This will only add to the Fed's indecision over what to do. The conviction for a Fed rate hike won't quite be there yet, which could explain why we're reacting positively." The one-two punch from May's weak employment report and the UK's vote to secede had all but erased any wagers on a Fed rate increase this month, after probabilities for a move were 55 per cent at the beginning of June. Despite the rebound in job gains last month, traders are still pricing in less than even odds of a boost to borrowing costs until at least the end of 2017.

BLOOMBERG