The Dow and the S&P 500 index traded at record highs Friday after the monthly U.S. jobs report came in better than expected, as the economy recovers from the COVID-19 pandemic and shakes off the resurgent delta variant.

What’s happening?

The Dow Jones Industrial Average
DJIA,
+0.43%

rose 125 points to 35,193, a gain of 0.4%, after touching an intraday record at 35,246.79.

The S&P 500 index
SPX,
+0.13%

added 5 points, or 0.1%, to 4,433, hitting an intraday record high at 4,440.82.

The Nasdaq Composite Index
COMP,
-0.48%

slipped 60 points to 14,834, a decline of 0.4%.

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.

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

What’s driving markets?

Stock-market investors tilted toward undervalued areas of the market, buying financials
XLF,
+1.98%
,
energy
XLE,
+1.37%

and materials shares
XLB,
+1.33%

after the U.S. Labor Department employment report for July showed that the U.S. economy added 943,000 new jobs in July, above forecast for 845,000, according to a Wall Street Journal survey of economists shows. That gain exceeds what was seen in June and offers some hope that the stalled employment recovery is regaining some steam.

The unemployment rate dropped to 5.4% from 5.9%, also surpassing expectations for a decline to 5.7%.

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

The strong results may be underpinning hopes for stronger quarterly 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 QE, or the $120 million 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,” Cincotta said.

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.

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.

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,
-8.96%

were surging 6.1% after the deals platform easily beat earnings forecasts.

Yelp
YELP,
+9.09%

shares jumped 13% after the online reviews site reported a surprise profit and a lift to its annual guidance.

Zynga
ZNGA,
-18.32%

stock was down 17% as the videogame publisher’s outlook overshadowed results that topped Wall Street estimates.

Novavax
NVAX,
-18.75%

shares slid 18% 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 32% 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. DKNGrose over 1% Friday, 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. MRNAfell 3.9% Friday, after the biotechnology company with one of the three COVID-19 vaccines granted emergency use authorization in the U.S. was downgraded by a long-time bullish analyst, saying that “the dream is alive, but valuation moves us to the sidelines.” 

Shares of Goodyear Tire & Rubber Co. GT surged over 8% Friday, 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 edged up, 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.

Shares of Lear Corp.
LEA,
-0.71%

were lower Friday, 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 12.5%, 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% buy expenses growing 8.3% amid higher transportation costs.

Canopy Growth Corp. shares CGC, WEED, declined, even 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, 1.286% rose more than 7 basis points to close at 1.28%. 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 0.4%.

Oil futures CL00 traded 0.3% higher, while gold futures GC00 headed for a loss of more than 2%.

In European equities, the Stoxx Europe 600 SXXP rose 0.2%, while London’s FTSE 100 UKX, 0.15% also added 0.2%.

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%.

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