Good report on jobs helps send stocks up

For weeks, critics said Wall Street’s big rally made no sense when the economy seemed set for only more despair. On Friday, it got a bit of validation.

The S&P 500 jumped an additional 2.6 percent after a report said the U.S. job market surprisingly strengthened last month, bolstering hopes that the worst of the recession may have already passed. Employers added 2.5 million workers to their payrolls; economists were expecting them instead to slash an additional 8 million jobs.

While economists cautioned that it’s just one month of data and that many risks still loom on the long road to a full recovery, the report gives some credence to the optimism that’s been building among stock investors that the economy can climb out of its current hole faster than forecast. That hope has been a big reason for the S&P 500’s rally of more than 40 percent since late March.

“It looks like the healing process is underway in the jobs market, and it looks like it’s happening sooner than expected,” said Todd Lowenstein, equity strategy executive of The Private Bank at Union Bank. “It looks like the worst is behind us.”

But analysts and economists warn that a full recovery is still a long way away. The unemployment rate is still above 13 percent, nearly quadruple where it was at the start of the year and on par with where it was during the Great Depression.

Economists warn that after an initial burst of hiring as businesses reopen, the recovery could slow in the fall or early next year unless most Americans are confident that they can shop, travel, eat out and fully return to their other spending habits without fear of contracting the virus.

The biggest threat to the market is a possible second wave of coronavirus infections, which could derail all the improvement and push governments to tighten up on lockdown orders. Increasing tensions between the U.S. and China are also raising worries about a resumption in the trade war between the world’s two largest economies. Some investors are also worried about volatility that could be created by this fall’s U.S. elections.

Nevertheless, investors Friday continued their recent trend of focusing more on companies that would benefit most from a growing economy, rather than those that had been earlier winners in the weak, stay-at-home economy.

Smaller stocks had the market’s biggest gains, as they often do when expectations for the economy are rising. Among the biggest stocks, energy producers, banks and industrial companies had the biggest gains.