Stocks and interest rates climb as job market keeps improving

U.S. stocks climbed Friday after a report showed the nation’s job market is still revving higher, even with the specter of a trade war hanging over markets around the world.

The better-than-expected news on jobs helped the Standard & Poor’s 500 index more than recover all its losses from earlier in the week. Interest rates and the value of the dollar also rose on expectations that the Federal Reserve now has more justification to continue raising interest rates steadily, with its next decision due in about a week and a half.

Beyond the jobs report, stronger-than-expected readings came in on U.S. manufacturing growth and construction spending. They helped turn attention away from the worries about global trade tensions and European politics that had dragged on stocks in recent weeks.

“It’s refreshing that some strong economic data today took some focus off the trade rhetoric,” said Jon Adams, senior investment strategist at BMO Global Asset Management. “It’s been a banner day for U.S. data overall. You look at the payrolls report, and it’s hard to find too much negative in there.”

The strong reports raise the likelihood that the Federal Reserve may increase short-term interest rates four times this year, rather than just three. Higher rates can hurt stock prices, but Adams said investors appear relatively prepared for the possibility “because the Fed is hiking for the right reasons.”

The S&P 500 index rose 29.35 points, or 1.1%, to 2,734.62. For the week, it climbed 0.5%, having scrambled back from a loss of more than 1%.

The Dow Jones industrial average rose 219.37 points, or 0.9%, to 24,635.21, and the Nasdaq composite climbed 112.21 points, or 1.5%, to 7,554.33. The Russell 2000 of small-company stocks rose 14.37 points, or 0.9%, to 1,647.98.

Twice as many stocks rose as fell on the New York Stock Exchange.

Employers added 223,000 jobs last month, more than economists expected and a pickup from April’s hiring rate. Wages for workers also accelerated.

The encouraging data helped push the yield on the 10-year Treasury note to 2.90% from Thursday’s 2.86%. The two-year yield, whose movements are dictated more by expectations for Fed movement, rose to 2.48% from 2.44%.

A quick beneficiary of higher rates can be the banking industry, which would reap bigger profits from making loans. Financial stocks in the S&P 500 rose 1.1%.

On the flip side were stocks that pay big dividends. Higher rates make bonds more attractive to income investors and pull buyers away from dividend-paying stocks. Utility stocks in the S&P 500 fell 1.5%, the largest loss among the index’s 11 sectors.

Another force helping stocks Friday was relief that politicians in Italy appear to have avoided a scenario that investors feared would bring down markets.

Italy’s anti-establishment 5-Star Movement and right-wing League succeeded Thursday in forming Western Europe’s first populist government. It will be headed by a political novice whose first try was rejected four days earlier as too risky for the Italian economy, but the outcome avoids an interim government and a swift return to the polls that investors had feared could end up being a referendum on Italy staying with the euro currency.

In European stock markets, France’s CAC 40 rose 1.2%, and Germany’s DAX climbed 0.9%. Britain’s FTSE 100 rose 0.3%.

In Asia, Japan’s Nikkei 225 slipped 0.1%, the Hang Seng in Hong Kong rose 0.1% and the Kospi in South Korea climbed 0.7%.

In commodities markets, benchmark U.S. crude fell $1.23 to settle at $65.81 a barrel. Brent crude, the international standard, fell 77 cents to $76.79 a barrel.

Natural gas rose 1 cent to $2.96 per 1,000 cubic feet. Heating oil fell 3 cents to $2.18 a gallon. Wholesale gasoline fell 2 cents to $2.14 a gallon.

Gold slipped $5.40 to settle at $1,299.30 an ounce. Silver fell 2 cents to $16.44 an ounce. Copper rose 3 cents to $3.10 a pound.

The dollar rose to 109.51 Japanese yen from 108.64 yen. The euro fell to $1.1662 from $1.1685. The British pound rose to $1.3346 from $1.3289.

UPDATES:

3:10 p.m.: This article was updated with closing prices, context and analyst comment.

1:25 p.m.: This article was updated with the close of markets.

This article was originally published at 7:15 a.m.