Dow closes up 200 points as stocks post biggest reversal in 4 years

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Stocks closed more than 1 percent higher Friday, recovering from an initial decline of more than 1.5 percent, as investors digested higher oil prices and a weaker-than-expected jobs report.

“The poor employment report put a footing to the market because it provided a way for the market to understand where it is,” said Robert Pavlik, chief market strategist at Boston Private Wealth. It “really did accomplish something even though it was weaker-than-expected. … Now you have a market that I see is on better footing going into earnings season.”

The Dow Jones industrial average and S&P 500 closed up a little more than 1 percent for their biggest intraday upside reversal since Oct. 4, 2011..

The Nasdaq composite closed up 1.5 percent for its biggest reversal since Aug. 12.

The major averages ended the week more than 1 percent higher, with the S&P 500 out of correction territory, or within 10 percent of its 52-week high.

“You did have the reversal, which was healthy,” said Qunicy Krosby, market strategist at Prudential Financial. “The initial reaction shows you that bad news that actually became bad news. … You could argue the market had a change of attitude, that bad news is good news, but I think this is the market probing and testing (the lows).”

Energy gained more than 3 percent to top health care and materials as the greatest advancer in the S&P 500, which gained to trade within 10 percent of its 52-week high, or out of correction mode on an intraday basis.

The Nasdaq composite also tried to emerge from correction territory on an intraday basis.

Crude settled up 80 cents, or 1,8 percent, at $45.54 a barrel. Oil jumped after the number of oil rigs in operation in U.S. oilfields fell by 26 in the week ended Oct. 2. That compares with a total decline of 35 rigs in the previous four weeks.

The gain in stocks “was leading in front of that but this (rig count) is going to confirm this move,” said Art Hogan, chief market strategist at Wunderlich Securities. We “started seeing some of the oversold sectors carry a bid, first biotech, then energy.”

The Nasdaq composite was the first major index to turn positive in midday trade, helped by a reversal in the iShares Nasdaq Biotechnology ETF (IBB), trading about 1 percent higher after earlier falling 2 percent. Apple also recouped losses to trade slightly higher.

“All of the negativity is already out there,” said Paul Yook, portfolio manager at BioShares Funds. “We’re really trying to set a strong bottom in biotech.”

IBB remains in a bear market, or more than 20 percent of its 52-week high, after falling there last Friday.

“Health care is experiencing a bounce that I think you have to be careful with,” Pavlik said. In biotechs “this is an extremely volatile group and that’s going to continue into next year especially with a presidential election.”

Katie Stockton, chief technical strategist at BTIG, said some technical factors were behind the intraday reversal in stocks.

“Importantly, many high-beta benchmarks have already dipped below their August low, so the rally (if it’s sustained through the close) suggests a successful retest has essentially already occurred. No one wants to miss the first leg of a relief rally because it’s often the most impressive.”

Analysts did not expect a retest of the August correction lows immediately on Friday. The Dow remains in correction territory, or more than 10 percent below their 52-week highs. Since Monday, the Russell 2000 has closed below it late-August correction low.

“I do think there’s some underlying good strength (in the U.S. economy). The problem is the financial markets are raising probability levels that it’s a bigger slowdown,” said Bill Stone, chief investment strategist at PNC Asset Management. “I still think we get a bit of a pick-up in the fourth quarter.”

Few analysts could find any positives in the September jobs report, which showed the U.S. economy created 142,000 jobs, a number far below the expected 203,000. August and July figures were also revised lower.

Unemployment held at 5.1 percent, according to the Labor Department. The participation rate plunged to 62.4 percent.

Average hourly wages fell by a cent to $25.09 during the month and were up only 2.2 percent from the same month in 2014, pointing to marginal inflationary pressures, Reuters said.

Indications of softness in the labor market cooled expectations that the Federal Reserve will start raising interest rates soon. Fed funds futures are now pricing the first rate hike will come no earlier than March 2016.

Marie Schofield, chief economist at Columbia Threadneedle Investments, said the economic data in the last two weeks has pushed her expectations for a rate hike to the first quarter of 2016.

“I’m seeing this is not a one-off report,” she said.

The financials sector fell 1 percent as the greatest decliner in the S&P, which struggled to hold above the psychologically key level of 1,900.

In morning trade, bank stocks (KBE) were off about 4 percent to their lowest level since Aug. 26 and on track for their worst daily performance since Aug. 24.

“We’re not getting any clarity from this jobs report. More uncertainty. And the uncertainty makes people unwilling to hold anything,” said JJ Kinahan, chief strategist at TD Ameritrade, noting there could be some sector rotation in Friday’s session.

“This is one more thing that puts the Fed into a tight spot,” he said.

Federal Reserve Vice Chairman Stanley Fischer on Friday said that no “acute risks” threaten short-term financial stability. But in prepared remarks, he made no direct reference to the U.S. central bank’s current monetary policy plans or the state of the economy.

St. Louis Fed President James Bullard, a non-voting member, said that policy focus should be on cumulative economic progress instead of snapshots of labor conditions, Reuters reported in the early afternoon.

The 10-year yield traded near 1.99 percent after hitting 1.92 percent, falling below 2 percent for the first time since Aug. 24. The 2-year yield also hit its lowest level since that date, holding near 0.57 percent in afternoon trade.

The U.S. dollar fell 0.3 percent against major world currencies, with the euro briefly topping $1.13 for its highest level. The yen strengthened to 119.89 against the dollar as of 2;26 p.m.

In other economic news, August factory orders showed a decline of 1.7 percent, the largest drop in eight months.

“There’s been a disconnect between Main Street and Wall Street for some time, the reason why the Fed keeps kicking the can down the road,” said Adam Sarhan, CEO of Sarhan Capital.

The Fed has said it will base its decision on economic data, though it did caution that it held off in September because of international developments, meaning a slowing China and its possible impact on the economy.

“My fear here is we are slowing down much faster than we anticipated,” said Tom Siomades, head of Hartford Funds Investment Consulting, which has about $76 billion in assets under management. He said expectations for third-quarter GDP had come down.

Still, Siomades said, “I think this is good for the market. They like the fact that the perception is the Fed is going to hold off.”

In Europe, the pan-European Stoxx 600 index closed about half a percent higher after dipping into negative territory as investors digested the U.S. jobs report.

In Asia, Japan’s Nikkei finished just 0.02 percent higher while Hong Kong’s Hang Seng surged 3.17 percent. Markets in mainland China remained closed for the National Day holiday, which lasts one week.

No significant earnings were expected Friday.

In the last half hour of trade, the Dow Jones Industrial Average gained 200 points, with Chevron leading advancers and Verizon and JPMorgan Chase the only decliners.

The S&P 500 gained 23 points, with energy leading eight sectors higher and financials and telecommunications declining.

The Nasdaq gained 80 points.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 21.

About three stocks advanced for every decliner on the New York Stock Exchange, with an exchange volume of 726 million and a composite volume of nearly 3.5 billion.

High-frequency trading accounted for 49 percent of Thursday’s trading volume of about 7.3 billion shares, according to TABB Group. During the peak levels of high-frequency trading in 2009, about 61 percent of 9.8 billion of average daily shares traded were executed by high-frequency traders.

Gold futures settled up $2.90 at $1,136.60 an ounce.

Evelyn Cheng

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