Stocks tied to the economic recovery rose after a stronger-than-expected jobs report on Friday, sending two key market averages to all-time highs.
The Dow Jones Industrial Average rose 144.26 points, or 0.4%, and closed at an all-time high of 35,208.51. The S&P 500 rose nearly 0.2% to clinch its own record close at 4,436.52, while the tech-heavy Nasdaq Composite dipped 0.4% to settle at 14,835.76.
For the week, the Dow rose 0.7% for its second positive week in three. The S&P 500 rose 0.9% for the week and is now up 18.1% for the year. The Nasdaq rose 1.1% for the week.
Friday's jobs report showed that the U.S. economy added 943,000 jobs in July, according to the Labor Department. Economists expected the economy to have added 845,000 jobs last month, according to estimates from Dow Jones. The unemployment rate dropped to 5.4%, below the estimate of 5.7%.
Bank shares led the gains post-jobs report as rates shot higher, increasing the companies' profitability prospects. Shares of JPMorgan gained 2.8%, while Bank of America rose 2.9%. Wells Fargo climbed about 3.8%. Shares of Goldman Sachs hit an all-time high, and regional bank stocks had their best day in nearly a month.
The 10-year Treasury yield, which has drifted lower over the summer, jumped as high as 1.3% on Friday. Yields move inverse to prices.
Industrials, retailers and energy stocks also gained as the jobs report soothed concerns about the economic comeback.
On the flip side, tech shares declined as the jump in rates caused investors to take profits in the names and move back into stocks that could benefit more from faster economic growth. Amazon and Apple dipped slightly, while Zoom Video fell 3.8%. Higher rates can expose tech stocks' lofty valuations.
Defensive stocks, such as utilities and health care companies, also slumped after the report.
"I think this is really, really good numbers for the stock market. It is just one number, they tend to be volatile, you've got to take it with a grain of salt. … And what this does more than anything is it causes a big shift in the leadership of this stock market," James Paulsen, chief investment strategist for The Leuthold Group, said on CNBC's "Squawk Box."
"The S&P isn't doing much, but the undertow here has shifted toward cyclicals and smalls, maybe even international markets to some degree, those more sensitive to the economy, and away from growth and defensive stocks, which have been leading for a while here," Paulsen added.
Friday marked the latest in a string of record highs for the S&P 500, which has continued to grind higher this summer even as concerns have risen about peaking economic growth and the spread of the delta variant of Covid-19.
"The backdrop for risk assets remains constructive – financial conditions are loose, fund flows are healthy, savings rates are high, and policy is broadly supportive," Third Point hedge fund manager Dan Loeb wrote in a note to clients on Friday.
The Labor Department's report comes after the weekly initial claims number reported on Thursday came in at 385,000, which was in-line with expectations, and the ADP private payrolls report on Wednesday disappointed.
Wall Street was focused on Friday's jobs report given its potential to affect the Federal Reserve's policy going forward. Fed Governor Christopher Waller told CNBC on Monday that he would advocate for the central bank to taper its asset purchases if the next two jobs reports showed a healthy recovery.
The July report showed that the economy was recovering, but not so quickly to force immediate action from the central bank, some strategists said.
"A nice number. Strong, but not overly strong. … I think the Fed will take comfort that the substantial progress toward labor force progress is in the works, but nothing was concerning in the report," said Yung-Yu Ma, chief investment strategist at BMO Wealth Management. "Although the number was strong, and the last month's numbers were revised upwards, I don't think there's anything that stands out that would lead the Fed to shift its course."
Small cap stocks performed well after the report, with the Russell 2000 rising 0.5% to finish the week with a gain of just under 1%.
A busy week of earnings continued on Friday with several notable reports, including from Canopy Growth, AMC Networks, DraftKings, Norwegian Cruise Line and Goodyear Tire. Shares of Expedia fell 7.9% after the travel company's earnings per share missed expectations in its quarterly report.
Additionally, Berkshire Hathaway earnings are on deck for Saturday morning.
So far, 89% of companies in the S&P 500 have reported earnings this quarter, and 87% of those have beaten earnings expectations, according to FactSet. That is on track to be the best quarter for earnings surprises since at least 2008.
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