Dow jumps 400 points after blockbuster September jobs report, while S&P 500 on track for small weekly gain

How stock indexes are trading

• The Dow Jones Industrial Average
  DJIA
  was up 406 points, or 1.2%, at almost 33,526, up more than 675 points from its session low.

• The S&P 500
  SPX
  gained nearly 62 points, or 1.5%, to 4,320.

• The Nasdaq Composite
  COMP
  climbed 231 points, or 1.8%, to 13,451.

For the week, the Dow was on pace to eke out a 0.1% gain while the S&P 500 was on track to advance 0.7% and the Nasdaq was heading for a 1.8% rise, according to FactSet data, at last check.

What’s driving markets

U.S. stocks were rising sharply Friday afternoon, after reversing course from their slide earlier in the session as investors parsed a U.S. employment report that was stronger than forecast.

“Wages slowed down,” said José Torres, senior economist at Interactive Brokers, in a phone interview Friday. “That was a great development” as the Federal Reserve aims to bring down inflation through monetary tightening.

Investors have worried that a hot labor market will keep wage growth elevated, adding to inflationary pressures that could see the Fed keep interest rates higher for longer or potentially hike its benchmark rate one more time this year.

A report Friday from the Bureau of Labor Statistics showed the U.S. economy created 336,000 jobs in September, far surpassing economists’ expectations for 170,000 new jobs. Also, the report said job gains in August and July were revised higher.

See: Jobs report shows big 336,000 gain in hiring in September. Labor market still hot.

But other details from the report were slightly more favorable in terms of monetary policy concerns.

For example, average hourly wages rose a mild 0.2% in September, bringing the 12-month rate of change through September to 4.2%, a slower pace than the prior month’s year-over-year rate of 4.3%.

“Even though the headline number was 2.5 times what Wall Street had anticipated, the more important detail below the surface was that wage inflation actually cooled,” said Sam Stovall, chief investment strategist at CFRA, during a phone interview with MarketWatch.

Renaissance Macro Research’s Neil Dutta said in a note that the jobs report was consistent with a soft landing for the economy and the Fed’s objective to lower the inflation rate back to 2%.

Also see: Why another Fed rate hike this year ‘still a close call’ after jobs report, according to JPMorgan’s David Kelly

“The strong labor market gives credence to the base case still being a soft landing,” said Yung-Yu Ma, chief investment officer at BMO Wealth Management, in a phone interview Friday. But that soft-landing narrative is “somewhat fragile and data dependent,” he said.

Investors will be watching for data scheduled to be released next week on September inflation from the consumer-price index and producer-price index.

Meanwhile, economists from Goldman Sachs Group said in a note Friday that “the continued rebalancing of the labor market” is consistent with their expectation that the Fed is done raising rates this year, despite senior Fed officials projecting another hike in their latest batch of forecasts, released last month.

Federal-funds-futures traders are expecting the Fed will keep its benchmark rate at the current range of 5.25% to 5.5% at its policy meetings in November and December, according to the CME FedWatch Tool.

“I’m of the belief that the Fed will not hike again this year,” BMO’s Ma said. “I don’t think it needs to.”

Meanwhile, Treasury yields, which pressured stocks have eased off earlier highs on Friday. The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
was up seven basis points at around 4.78%, according to FactSet data, at last check.

Rising Treasury yields, particularly on the long end of the yield curve, have been blamed for a selloff in stocks over the past couple months. But the S&P 500 is now up so far in October, with a gain of 0.7%, according to FactSet data, at last check.

Companies in focus

• Pioneer Natural Resources‘
  PXD,
  +10.45%
  stock soared following a report in The Wall Street Journal that Exxon Mobil is closing in on a deal to buy the Texan shale driller for about $60 billion. Exxon Mobil
  XOM,
  -1.67%
  shares declined on the news.

• Levi Strauss & Co.
  LEVI,
  -0.83%
  was up slightly after the retailer late Thursday cut its outlook for the full year and its executives noted a “continued softness in the wholesale channel, primarily in the U.S.”

• Tesla
  TSLA,
  +0.18%
  rose modestly after the automobile maker cut the price of its Model 3 cars from $40,240 to $38,990 and dropped the cost of its model Y electric vehicles from $50,990 to $45,990 in the U.S.

• Koninklijke Philips‘
  PHG,
  -7.20%
  shares dropped after the U.S. Food and Drug Administration called for more testing of its recalled sleep and respiratory devices, following concerns about foam used in millions of recalled products.

Steve Goldstein contributed to this report.