MarketView for June 7

Summary

The Dow shot up more than 200 points, scoring its best day since January 2, and the S&P 500 ended a two-week losing streak on Friday after U.S. jobs data eased investors' worries that the Federal Reserve may be reducing its stimulus program in the near future. All three major U.S. stock indexes rose more than 1 percent for the day, extending gains toward the session's end.

The S&P 500 and the Nasdaq posted their best daily percentage gains since April 16. For the week, the Dow gained 0.9 percent, the S&P 500 rose 0.8 percent, and the Nasdaq added 0.4 percent.

Microsoft, up 2 percent at $35.67, was among stocks giving the biggest lift to both the S&P 500 and the Nasdaq.

Stocks have rallied for most of the year. But the market began to lose ground following Fed Chairman Ben Bernanke's comments on May 22 that the central bank may decide to ease back on its bond-buying programs in the next few policy meetings if data shows the economy is showing improvement. Last Friday, the S&P 500 marked two consecutive weeks of losses for the first time this year.

The Labor Department's data showed job gains of 175,000 in May, slightly above the economists' forecast, while the U.S. unemployment rate increased to 7.6 percent last month from 7.5 percent in April.

The job market has remained one of the economy's weakest areas since the recent downturn. The Fed, in turn, has linked its monetary policy to improvement in the country's job market. Job gains of approximately 200,000 jobs per month over several months are needed to significantly reduce high unemployment.

The market's recent volatility suggests investors are starting to price in the eventual end of Fed stimulus, analysts said, raising concerns about how well stocks will fare without it.

The stock market's rally this year has largely been driven by the Fed's continued bond purchases. The Dow is up 16.4 percent for 2013, while the S&P 500 is up 15.2 percent and the Nasdaq is up 14.9 percent.

High dividend-yielding shares, which led this year's rally, have been among the weakest performers over the last two weeks.

On Friday, Wal-Mart rose 0.9 percent to $76.33 and helped lift the Dow after the world's largest retailer said its board had approved a new $15 billion stock-repurchase program, the first in two years.

Shares of TiVo lost 19 percent to $11.10. TiVo said it would receive $490 million after settling a patent lawsuit with Google‘s Motorola Mobility, Cisco and Time Warner Cable just days before the case was to go to trial.

Approximately 6.4 billion shares changed hands on the three major equity exchanges, in line with the average daily closing volume of about 6.4 billion shares this year.

Job Numbers Improve

In its anxiously awaited jobs report released on Friday before the markets opened, the Labor Department reported that employers stepped up hiring in May with the addition of 175,000 jobs last month after adding only 149,000 in April. At the same time, the unemployment rate ticked a tenth of a percentage point higher to 7.6 percent, but the rise was driven by more workers entering the labor force, a relatively hopeful sign.

Thoughts about what will happen next with regard to the Federal Reserve are mixed, with some economists supporting the view that the Fed might be able to trim its bond purchases as soon as September; others think the Fed might not make a move until next year.

Nonetheless, it was the third straight month that payrolls outside the farm sector increased by less than 200,000. Budget cuts have led to hiring freezes at many government agencies, and attrition could be slowly reducing payrolls. Government payrolls declined by 3,000 in May.

After expanding at a 2.4 percent annual rate in the first three months of the year, many analysts expect the economy to throttle back to a growth pace of just around 1.5 percent in the second quarter given Washington's austerity drive.

About 4.4 million Americans have been unemployed for more than six months, roughly 3 million more than pre-recession levels. The longer workers are out of a job, the greater the risk they become essentially unemployable. That could deal lasting damage to the economy and has lent urgency to the Fed's efforts to stimulate growth.

Still, May's pace of job growth is right around the average for the prior 12 months. Over that period, the jobless rate fell about half a percentage point and the ranks of the long-term unemployed declined by about 1 million people.

Even the increase in the unemployment rate had a bright side. The share of the population in the labor force - which includes people who are either employed or looking for work - rose to 63.4 percent. That was driven by 420,000 workers entering the work force. That is good news because some of the recent drop in the jobless rate has been due to workers leaving the labor force, either because they retired, went back to school or gave up looking for a job.

The poll of households from which the jobless rate is derived showed even stronger growth than the payroll survey of employers, and total hours worked in the economy ticked higher.

At the same time, U.S. factories are feeling the pinch from Europe's debt crisis, which has sent a chill over the global economy. Manufacturing employment declined by 8,000 jobs last month.

The biggest job gains were in professional and business services, with temporary jobs up 26,000; indicating that employers could expand their full-time staffs. The leisure and hospitality industry also showed strength, as did the retail sector.