Major stock indexes were trading higher on Friday, building on Thursday's rally as better-than-expected April reports on the U.S. labor market and factory sector added to the slightly better economic data released Thursday, bolstering investors' confidence that a recovery is starting to unfold. Some positive earnings reports also contributed to the market's growing optimism.
On Friday, the Dow Jones industrial average was trading 79.63 points, or 0.61%, higher at 13,089.63. The broader S&P 500 index rose 7.51 points, or 0.53%, to 1,416.85. The tech-heavy Nasdaq composite index edged up 2.84 points, or 0.11%, to 2,483.55.
Technology and financial stocks led Thursday's recovery, fed by a resurgence in the dollar and lower oil prices, as well as the possibility that Kuwait's $250 billion sovereign wealth fund will increase its stake in struggling financial companies Merrill Lynch & Co. (MER) and Citigroup (C).
On the economic data front, nonfarm payrolls dropped 20,000 in April, a pleasant surprise to a market that was braced for a much bigger loss of 73,000 jobs. The unemployment rate slipped back to 5.0% from 5.1% instead of ticking up to 5.2% as had been expected.
Manufacturing jobs dropped 46,000 and construction jobs fell 61,000, partly offset by an 81,000 increase in the private service industry, led by a 52,000 gain in Education & Health. Government payrolls increased 9,000.
The workweek contracted slightly to 33.7 hours, which matched expectations, after the stronger-than-expected 33.8 hours in March. Hourly earnings climbed just 0.1% rather than the anticipated 0.3% increase. The household employment measure surged 362,000.
Despite the better-than-expected payroll headline and drop in the unemployment rate, Action Economics said the report has lowered its forecasts for personal income and industrial production.
The data fit comfortably with the Fed's shift at this week's policy committee meeting to a more cautious stance and the smaller quarter-point easing in the Fed funds rate. The reduced drop in payrolls, the outright decline in the unemployment rate to 5.0% and the restrained 0.1% wage gain have diminished both economic and inflation risk, though the weak hours-worked figures suggest there will still be significant weakness in the remaining monthly figures for April, and the Fed is far from out of the woods on inflation risks, Action Economics said.
Factory orders jumped 1.4% in March, sharply above market expectations of a flat report. Durable orders were revised upward to plus 0.1% from the negative 0.3% reported last
week. Nondurable orders (and shipments) rose 2.6%, in part because of an 8.7% jump in petroleum and products, which is price-caused. But even excluding petroleum, nondurable orders were up 1.1%. Factory shipments rose 1.1%, and were up 1.6% excluding transportation. A 0.9% increase in inventories adds to the support for first-quarter growth. The data are much stronger than expected, and suggest a better trajectory for manufacturing going into the second quarter.
Although M&A activity has been muted since the credit crisis took hold, expectations of an economic recovery could change that.
Microsoft (MSFT) may make a hostile takeover offer for Yahoo Inc. (YHOO) as early as Friday, the Wall Street Journal reported earlier on Friday. In a meeting with Microsoft employees on Thursday, Chief Executive Steve Ballmer didn't say whether he was willing to raise the unsolicited bid Microsoift made in February, which is currently worth $42.4 billion, or $29.48 per share, based on Microsoft's closing stock price Thursday. Yahoo has rejected the offer, saying it undervalues the company. Microsoft's board has been considering whether to boost the bid to as much as $33 per share, the Wall Street Journal said.
The U.S. Dollar Index surged 1.07% to 73.