Stocks closed higher on Friday as the latest U.S. jobs report hit the sweet spot with Wall Street traders.
The Dow Jones Industrial Average climbed 372 points, or 1.4% to close at 26,573.75. The S&P 500 advanced 1.4% to 2,952.01. The Nasdaq Composite also gained 1.4% to close at 7,982.47. For the week, however, the Dow and S&P 500 posted a third straight decline. The Nasdaq rose about 0.5% week to date.
The U.S. economy added 136,000 jobs in September, the Bureau of Labor Statistics said Friday. Economists polled by Dow Jones expected an increase of 145,000 jobs. However, the unemployment rate fell to 3.5%, a 50-year low.
Friday's jobs report was solid enough to dampen recession fears, but lackluster enough to keep the Federal Reserve on track to cut rates again later this month. Expectations for a 25 basis-point rate cut were at 79% on Friday, according to the CME Group's FedWatch tool.
"This sounds like a Goldilocks number to me," Steve Grasso, director of institutional sales at Stuart Frankel, told CNBC's "Squawk Box." "It still gives the Fed some room for cover to cut rates. This is as close to a not-too-hot, not-too-cold greeting for the market."
Tech was the best-performing sector in the S&P 500, gaining 1.7% as Apple rose 2.8%. The tech giant's stock rose after Nikkei reported the company is increasing iPhone 11 production by 10%.
Treasury yields briefly jumped before giving back those gains. The 10-year yield last traded at 1.51% after hitting 1.55%.
Rate-cut expectations surged on Thursday following the release of disappointing data on the U.S. services sector. The increasing hope of lower Fed rates led to a sharp rebound on Wall Street as the Dow recovered from a 335-point deficit to close higher.
Nonetheless, expectations for economic growth are falling. Earlier this week, the Atlanta Fed's GDPNow tool pointed to third-quarter growth of just 1.8%. Boston Fed President Eric Rosengren told CNBC's Steve Liesman on Friday he sees just 1.7% growth for the second half of 2019. Fed Chairman Jerome Powell said Friday the economy is in a "good place," adding it is the central bank's job to keep the economy there.
But Rob Croce, senior portfolio manager for risk parity and managed futures at Mellon, is not convinced the Fed will be as effective as it has been in dealing with economic downturns. He pointed to the recent volatility in the Treasury market, which sent the 10-year from 1.5% to 1.9% before a sharp reversal.
"The environment feels very fragile to us," Croce said. Yet "the market has been operating under the assumption that the Fed has our back and that they're omnipotent. So, you've seen the market shake off any political circumstances."
Friday's gains cut into the Dow and S&P 500's weekly losses, but the two indexes still fell for a third straight week. The Dow and S&P 500 both lost at least 0.3% week to date.
This weekly performance came after a dismal U.S. manufacturing data report sparked fears of a potential recession in the U.S. Between Tuesday and Wednesday, the Dow lost more than 800 points.
—CNBC's Silvia Amaro contributed to this report.