The Dow and the S&P 500 index were trading in record territory Friday afternoon after the monthly U.S. jobs report came in better than expected, as the economy continues to recover from the COVID-19 pandemic and investors shake off delta variant concerns.

Consumer discretionary shares and technology stocks were being hurt by a rise in long-dated benchmark bond yields and a rise in the U.S. dollar though, putting pressure on growth stock areas of the market.

What’s happening?

The Dow Jones Industrial Average
DJIA,
+0.41%

rose almost 134.47 points to 35,198.72, a gain of 0.4%, after touching an intraday record at 35,246.79.

The S&P 500 index
SPX,
+0.17%

added 6.14 points, or 0.1%, to 4,435.24, hitting an intraday record high at 4,440.82, earlier in the session.

The Nasdaq Composite Index
COMP,
-0.40%

slipped 65.41 points to 14,829.70, a decline of 0.4%. The yield-sensitive index was off its lows of the session at 14,788.59.

On Thursday, the Dow industrials rose 271.58 points, or 0.78%, to finish at 35,064.25. The S&P 500 gained 26.44 points, or 0.6%, to close at 4,429.10 and the Nasdaq Composite advanced 114.58 points, or 0.8%, to end at 14,895.12, both setting fresh closing records.

For the week, the Dow was heading for a 0.8% gain, while the S&P 500 was on pace to advance 0.9% and the tech-heavy Nasdaq was on track to rise 1.1%.

Opinion: The S&P 500 looks strong—but these ‘internals’ are far less positive

What’s driving markets?

The Dow and S&P 500 were heading for record closes Friday afternoon, as investors digested a fresh employment report for July from the U.S. Labor Department that saw a better-than-expected 943,000 jobs created and the unemployment rate fall to 5.4% from 5.9%. The gain in new jobs exceeded what was seen in June and offers some hope that the stalled employment recovery is regaining some steam.

The jobs report “threw some cold water on worries that a lot of investors had that cyclical strong growth will slow,” said Brent Schutte, chief investment strategist, Northwestern Mutual Wealth Management Co., in a phone interview.

Schutte expects the stock market will continue to move higher this year, but “more so in those cyclical areas that do well when growth is strong.” That means buying opportunities in small-cap and value stocks, he said.

Stock-market investors tilted toward undervalued market segments, buying financials
XLF,
+2.05%
,
energy
XLE,
+0.98%

and materials shares
XLB,
+1.45%

after the employment report.

“The Main Street economy is recovering as well or better than we would have hoped,” said Josh Rubin, a portfolio manager at Santa Fe, New Mexico-based Thornburg Investment Management, in an interview. “That’s definitely much more positive for the brick-and-mortar economy compared to the Nasdaq-side of the economy being able to maintain lofty valuations.”

The July jobs data came as businesses have been struggling with back-to-work plans due to the fast spread of the delta variant of Covid, which has been hitting the U.S. and other countries world-wide.

The biggest laggard of the S&P 500’s 11 sectors, consumer discretionary
XLY,
-0.68%

was down 0.7%, led by declines in Amazon.com
AMZN,
-0.92%
,
Tesla Inc.
TSLA,
-2.17%
,
and travel-related firms Booking Holdings Inc.
BKNG,
-1.12%

and Expedia Group
EXPE,
-7.92%
.

Still, the strong jobs report may be underpinning some hope for ongoing improvement in quarterly corporate earnings in the remainder of the year from American corporations after what has thus far been a strong second quarter, Matt Peron, director of research at Janus Henderson Investors said.

“This bodes well for continued earnings strength in 2H21, which should be supportive of the market, especially for the economically sensitive sectors which have been laggards of late,” wrote Peron in emailed remarks Friday.

However, the data also may embolden the Federal Reserve to pullback on accommodative measures that have helped to stimulate economic growth and asset prices.  

“The payroll number has beaten the drum a bit harder again and today we have a clear warning sign that excessive loose monetary policy is going to leave the town soon,” wrote Naeem Aslam, chief market analyst at AvaTrade, in a note after the nonfarm-payrolls figures were released.

Indeed, a number of analysts took the report as giving credence to the Federal Reserve’s timeline to taper its quantitative-easing measures, or the $120 billion a month bond-buying program that helped to ease tight financial conditions during the height of the pandemic turmoil back in March and April of 2020.

“We know that the Fed was looking for substantial progress in the labour market recovery and that is exactly what we appear to be seeing over the past two reports,” wrote Fiona Cincotta, senior financial markets analyst at City Index, in emailed remarks. “Today’s better than forecast reading prompted bets that the Fed could look to taper support sooner.”

Aberdeen Standard Investments Deputy Chief Economist James McCann, in emailed comments characterized the jobs report as “strong,” and said “it is really going to cement the view that the Fed is not far off giving advance notice of a tapering announcement.”

Investors have speculated that the U.S. central bank may signal its intention to scale back its asset-purchases program at a monetary policy gathering in Jackson Hole, in northwestern Wyoming, by the end of this month.

Northwestern Mutual Wealth Management Co.’s Schutte expects the next monthly jobs report may be particularly influential in any potential move by the Fed toward tapering as it will have “the delta variant fully baked into it.” He said concerns over the delta variant has “amped up in the last couple of weeks.”

See also: Not delta but ‘all alpha’: economists react to July ‘remarkably strong’ U.S. employment report

Earlier this week, Federal Reserve Vice Chairman Richard Clarida, said the conditions for the first rate increase will be met “by year-end 2022” allowing for the first move in 2023. The Fed vice chairman said he sees the recent rise in inflation as “transitory.” But he added that the risks of higher inflation are greater than the risks of low inflation.

“The Fed is playing a fine line,” said Phil Kastenholz, director in investment strategy and research at Aspiriant, in an interview Friday. “We’re worried about the market not fully appreciating how soon the Fed may have to increase rates and the speed of tapering.”

Kastenholz said that he is particularly concerned about wage inflation, with the jobs report Friday showing a 4% increase over the past year. He worries higher wages could lead to stickier rises in inflation.

In other economic news, a reading on U.S. wholesale inventories increased 1.1% in June.

On the public health front, the U.S. is averaging more than seven times as many new COVID cases a day as it was at the beginning of July, according to a New York Times tracker, the majority of whom are in unvaccinated people.

California will require COVID-19 vaccines for all healthcare workers by Sept. 30, the Associated Press reported. And New Jersey will require masks for K-12 students and school staff when the new year begins in a few weeks, Gov. Phil Murphy is set to announce Friday as COVID-19 cases rise in the state, AP reported.

What stocks are in focus?

Groupon shares
GRPN,
-14.09%

were down 13.3% even after the deals platform easily beat earnings forecasts.

Yelp
YELP,
+5.24%

shares jumped 6.7% after the online reviews site reported a surprise profit and a lift to its annual guidance.

Zynga
ZNGA,
-18.22%

stock tumbled about 18% as the videogame publisher’s outlook overshadowed results that topped Wall Street estimates.

Novavax
NVAX,
-19.61%

shares slid almost 20% as the biotech reported a wider-than-expected loss on the quarter, and said it push back submitting its COVID-19 vaccine to the Food and Drug Administration for emergency use authorization until the fourth quarter.

Shares of Sphere 3D Corp. ANY soared nearly 40% on heavy volume to pace after the stand-alone storage and technologies company announced an agreement that provides a six-month exclusive right to assume all of Hertford Advisors Ltd.’s rights to bitcoin mining agreements. 

Shares of DraftKings Inc. DKNG traded up 2.9%, after the sports betting company raised its full-year revenue outlook, but the company disclosed an investigation by the Securities and Exchange Commission concerning allegations over “black-market gaming” and money laundering made by short seller Hindenburg Research.

Shares of Moderna Inc. MRNA slipped 0.3%, after the biotechnology company with one of the three COVID-19 vaccines granted emergency use authorization in the U.S. was downgraded by a longtime bullish analyst, saying that “the dream is alive, but valuation moves us to the sidelines.” 

Shares of Goodyear Tire & Rubber Co. GT jumped 7.8%, after the tire maker reported a second-quarter profit that was double what was expected, with revenue from all geographic regions topping forecasts, as the negative effect on demand from the COVID-19 pandemic “moderated significantly.”

Shares of Norwegian Cruise Line Holdings LtdNCLH rose 2.8%, after the cruise operator reported a narrower-than-expected second quarter loss but revenue that was a bit light and cash burn that topped guidance. 

Cinemark Holdings Inc. CNK posted a net loss of $142.5 million, or $1.19 per share, for the second quarter, narrower than the loss of $170.4 million, or $1.45 a share, posted in the year-earlier period. revenue came to $294.7 million, up from just $9.0 million a year ago when theaters were closed for the pandemic. Its stock was up 1.6%.

Shares of Lear Corp.
LEA,
+0.07%

were 0.1% lower, after the auto seating and electronics systems company reported second-quarter profit that beat expectations, revenue that nearly doubled but was shy of forecasts and cut its full-year outlook citing the impact of semiconductor and component shortages.

Gannett Co. Inc. shares GCI jumped 13.4%, after the USA Today parent posted a surprise profit for the second quarter as revenue topped estimates.

The U.S. Postal Service reported Friday fiscal third-quarter losses that widened to nearly $3 billion, with revenue rising 4.8% but expenses growing 8.3% amid higher transportation costs.

Canopy Growth Corp. shares CGC, WEED, gained less than 1% in U.S. trading after the Canadian cannabis company posted a profit for its fiscal first quarter, thanks to noncash fair value changes in some of its holdings of more than C$600 million ($479.9 million).

How are other markets doing?

The yield on the 10-year Treasury note TMUBMUSD10Y rose to about 1.30% in Friday afternoon trading. Yields and debt prices move in opposite directions.

The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, rose 0.6%.

Oil futures CL00 for the U.S. benchmark ended 1.2% lower at $68.28 a barrel, while gold futures GC00 settled at $1,763.10 an ounce for a 2.5% loss.

In European equities, the Stoxx Europe 600 SXXP finished in positive territory but little changed, while London’s FTSE 100 UKX posted a slight gain of 0.04%.

In Asia, the Shanghai Composite SHCOMP fell 0.2% and the Hang Seng Index HSI dropped 0.1%, while Japan’s Nikkei 225 NIK rose 0.3%.

—Barbara Kollmeyer contributed to this report.

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