Stocks head for record high following solid jobs report

Stocks powered to records Friday after a surprisingly strong jobs report gave reassurance that the economy is still solid, despite the pain U.S. factories are feeling from President Donald Trump’s trade war.

The Labor Department’s report showed that employers added more jobs last month than economists expected, and hiring was stronger in prior months than previously thought. The numbers were encouraging enough that investors overlooked yet another report showing U.S. manufacturing is weakening even more than expected.

Together, the data solidified Wall Street’s view that the economy is nestled in a sweet spot for markets. The job market is strong enough to encourage spending by households, which has been the driving force for the economy. That can hopefully make up for the downturn in spending by businesses, as CEOs hold off on spending given all the uncertainty about global trade.

Such a balance should in turn keep the Federal Reserve holding interest rates steady at their low levels, after it cut rates earlier in the week for the third time this year, economists said. Low interest rates can goose economic activity. They also make stocks more attractive as investments relative to bonds.

The S&P 500 was on pace to set an all-time high for the third time this week, while the Nasdaq composite was set to clinch a record for the first time since July. The Dow Jones Industrial Average, which many investors see as a less important gauge of the market, bounced to within 0.2% of its record set in July.

Treasury yields climbed as optimism rose in the economy and traders pared back bets that the Fed will cut interest rates in the next few months. The price of crude oil climbed, and gold dipped.

KEEPING SCORE: The S&P 500 was up 0.8% as of 2:35 p.m. Eastern time. It’s on pace to close out the week with a 1.3% weekly gain, which would be its fourth straight and its longest winning streak since the start of March.

The Dow Jones Industrial Average climbed 267 points, or 1%, to 27,313 and get within 50 points of its record. The Nasdaq composite added 0.9%.

HALF FULL ON THE ECONOMY: A report Friday morning showed that U.S. manufacturing shrank for the third straight month in October, and the reading was weaker than economists expected. Immediately after the report was released, Treasury yields dipped in an indication of worry by investors and increasing expectations that the Fed may need to cut interest rates again after lowering them three times this year.

The weak report matches data points from around the world as manufacturers feel the brunt of the global trade war, with customers holding back on orders.

But even there, economists see some glimmers of optimism, such as improving sales orders relative to inventory levels, said Derek Hamilton, global economist at Ivy Investments. And after combining them with Friday’s better-than-expected jobs report, Treasury yields ended up rising Friday. Investors also cut their expectations for another Fed rate cut this year, down to a probability of 12.5% from 22.1% a day earlier.

“Over the last decade, we’ve had these mini-cycles where manufacturing activity slows quite a bit, but the consumer keeps the economy going, and I think that’s what’s going on right now,” Hamilton said.

WHAT COULD EMPTY THE GLASS: The wild card for markets, as has been the case since Trump professed in early 2018 that trade wars are good and easy to win, is what happens in trade negotiations between the United States and the world’s other major economies.

The U.S. and China have agreed to at least a temporary truce in what Trump dubbed “phase one” of a trade deal, as talks continue. But uncertainty reigns over what will come of them.

“If we wake up tomorrow morning and get a tweet from President Trump that the deal is off, we’re raising tariffs, then all this is out the window,” Hamilton said.

That’s why he’s looking to see what the White House says when it announces where the leaders of the U.S. and China will sign “phase one.” They were supposed to meet at an economic summit next month in Chile, but the host nation canceled the event due to mass demonstrations occurring there.

YIELDS: The yield on the 10-year Treasury rose to 1.73% from 1.69% late Thursday. The two-year yield, which moves more on expectations of Fed moves, rose to 1.56% from 1.55%.

EYES ON EARNINGS: Corporate earnings were a big focus on Wall Street this week. So far this earnings period, three-quarters of the companies that reported beat analyst’s forecasts, which helped temper fears over a potentially steep contraction for profits. The majority of companies in the S&P 500 have now issued their latest results.

Companies in the index are now expected to report a profit slump of less than 3% compared with prior forecasts for a contraction of more than 4%. That figure is likely to continue improving as the remaining companies report, if previous quarters this year are a guide.

STRONG JUMP: Fitbit surged 15.6% after the maker of wearable fitness technology agreed to be acquired for $2.1 billion by Google’s parent company, Alphabet. Fitbit is a pioneer in the industry, but it’s been under pressure from other device makers.

ENERGY RISING: Exxon Mobil rose 2.7% after it beat Wall Street’s third-quarter profit forecasts despite facing a sustained slide in oil prices. The company reported a 3% increase in oil production along with a 4% rise in liquids production driven by growth from its Permian Basin operations.

OVERSEAS: Asian markets mostly rose, though Japan’s Nikkei 225 fell after a weak report on manufacturing. European markets also rose.

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