U.S. Stocks Extend Recovery Rally On Optimism About Interest Rate Cut

(RTTNews) - Extending the substantial recovery seen over the past few sessions, stocks moved sharply higher during the trading day on Friday. With the rally, the Dow reached its best closing level in a month after ending last Friday's trading at a four-month closing low.

The major averages finished the day off their highs of the session but still firmly in positive territory. The Dow jumped 263.28 points or 1 percent to 25,983.94, the Nasdaq soared 126.55 points or 1.7 percent to 7,742.10 and the S&P 500 surged up 29.85 points or 1.1 percent to 2,873.34.

For the week, the Dow skyrocketed by 4.7 percent to record its best week since November, while the Nasdaq and the S&P 500 spiked by 3.9 percent and 4.4 percent, respectively.

The continued strength on Wall Street reflected optimism disappointing U.S. jobs data could spur the Federal Reserve to lower interest rates in the near future.

The Labor Department's closely watched monthly jobs report released before the start of trading showed a substantial slowdown in the pace of U.S. job growth in the month of May.

The report said non-farm payroll employment rose by 75,000 jobs in May after soaring by a downwardly revised 224,000 jobs in April.

Economists had expected employment to increase by about 185,000 jobs compared to the jump of 263,000 jobs originally reported for the previous month.

Meanwhile, the unemployment rate came in at 3.6 percent in May, unchanged from the previous month and in line with economist estimates.

"The soft 75,000 gain in non-farm payrolls in May wasn't quite as bad as the dismal ADP employment reading earlier this week but, along with the downward revisions to previous months, it is another sign that economic growth is slowing," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, "On balance, we still think Fed officials will want to see evidence of more sustained weakness before taking action, but we are increasingly convinced that the Fed will begin cutting interest rates later this year."

The markets have recently benefited from optimism about a potential interest rate cut after Fed Chairman Jerome Powell pledged to act "as appropriate" to sustain the economic expansion.

Stocks remained firmly positive after President Donald Trump said there is a "good chance" the U.S. and Mexico will reach an agreement to avert his threatened 5 percent tariff on all Mexican imports.

Trump threatened to impose the tariffs unless Mexico acts to stop the flow of migrants passing through the country and into the U.S. but now says a deal could also involve Mexico purchasing more American agricultural products.

Sector News

Software stocks turned in some of the market's best performances on the day, driving the Dow Jones U.S. Software Index up by 2.1 percent.

Reflecting the substantial rebound by the sector, the software index reached its best closing level in a month after ending Monday's trading at its lowest closing level in well over two months.

Significant strength also emerged among retail stocks, as reflected by the 1.6 percent gain posted by the Dow Jones U.S. Retail Index.

Bookseller Barnes & Noble (BKS) posted a standout gain after agreeing to be acquired by Elliott Advisors in an all-cash transaction valued at approximately $683 million.

Tobacco, biotechnology, and healthcare stocks also saw considerable strength on the day, moving higher along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Friday, with several major markets closed for holidays. Japan's Nikkei 225 Index climbed by 0.5 percent, while Australia's S&P/ASX 200 Index jumped by 1 percent.

The major European markets also moved to the upside on the day. While the French CAC 40 Index spiked by 1.6 percent, the U.K.'s FTSE 100 Index surged up by 1 percent and the German DAX Index advanced by 0.8 percent.

In the bond market, treasuries gave back ground after an early rally but remained firmly positive. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 4 basis points to 2.084 percent.

Looking Ahead

Next week's trading is likely to be impacted early on by whether Trump follows through on his threat to impose a 5 percent tariff on all Mexican imports.

Reports on producer and consumer prices, import and export prices, retail sales, and industrial production may also attract attention as the week progresses.