By Matt Jarzemsky
The Dow industrials and S&P 500 capped their third-straight
weekly gains at record highs Friday, after a largely as-expected
May employment report showed the U.S. economy continuing on a
moderate growth path.
The Dow Jones Industrial Average advanced 88.17 points, or 0.5%,
to 16924.28.
The S&P 500 index rose 8.98 points, or 0.5%, to 1949.44. The
Nasdaq Composite Index added 25.17 points, or 0.6%, to 4321.40.
The U.S. added 217,000 jobs in May, the Labor Department
reported, ahead of the 210,000 median estimate of economists in a
poll by The Wall Street Journal. The reading marked the first time
since 1999 the economy has added at least 200,000 jobs for
four-straight months.
The unemployment rate, obtained in a separate survey, was 6.3%,
unchanged from April and a touch below economists' 6.4%
forecast.
"It was nice just to see some validation that this post-winter
recovery looks to be moving in a positive direction," said Michael
Fredericks, a portfolio manager on the $7.8 billion BlackRock
Multi-Asset Income Fund.
The fund has maintained a moderately bullish position on U.S.
stocks of late, while selling some fixed-income investments that
had risen in price this year. "High quality dividend-paying stocks
are going to continue to do well," he said. "We think that some
cyclical parts of the market ought to respond well as the economy
picks up."
But he is also been buying derivatives that protect against a
decline in the market, in part because stock investors' sanguine
attitude lately has made it inexpensive to do so. "We're just
trying to buy some cheap insurance" against a pullback, he
said.
The Chicago Board Options Exchange Volatility Index--a measure
of traders' expectation for future price swings in the S&P
500--fell 5.7% and was on track to close at a seven-year low.
Small companies' shares outperformed, recovering from an April
slide. The Russell 2000 index added 1% and was up 2.7% for the
week, its biggest weekly gain since February.
Short-term oriented investors were buying derivatives that pay
off if small-caps rally "in big size" the last few days, some of
them in an effort to close out previous bearish bets on that corner
of the market, said Jeff Yu, head of single-stock derivatives
trading at UBS AG.
"Investors are positioning themselves for a breakout of the
slump that small-caps have been in this year," he said.
Year-to-date, the Russell 2000 is still up just 0.1%, lagging
behind the S&P 500's 5.5% advance.
Selling in bonds pushed the yield on the 10-year Treasury note
to 2.597% from 2.584% late Thursday.
Gold futures eased 0.1% to $1,252.10 an ounce, while crude oil
futures tacked on 0.2% to $102.66 a barrel. The dollar edged higher
against the euro, but lost some ground against the yen.
European markets were broadly higher, extending gains seen
Thursday after the European Central Bank's announcement of stimulus
measures on Thursday. The Stoxx Europe 600 rose 0.7%, capping its
eighth-straight weekly gain.
Asian markets saw weakness, with China's Shanghai Composite
shedding 0.5% and Japan's Nikkei Stock Average slipping less than
0.1%.
Data-center equipment provider Arista Networks Inc. rallied 28%
in its trading debut, after pricing its initial public offering $3
above the price range it had forecast.
VeriFone Systems Inc. added 8.6% after reporting
better-than-forecast quarterly results and announcing a plan to
reduce its employee count by 500.
Hertz Global Holdings Inc. slumped 9.1% after the car rental
company said it would have to restate results of the past three
years, citing a material weakness in internal financial-reporting
controls. Hertz also said fiscal first-quarter results are likely
to miss analyst expectations as a result of costs associated with
the accounting review.
Write to Matt Jarzemsky at matthew.jarzemsky@wsj.com