U.S. stocks advanced Friday after the December jobs report and an economic activity survey showed signs that inflation may be cooling, signaling that the Federal Reserve's interest rate hikes are having their intended effect.
The Dow Jones Industrial Average increased 700.53 points, or 2.13%, to close at 33,630.61. The S&P 500 ended up 86.98 points, or 2.28%, to 3,895.08. The Nasdaq Composite added 2.6%, which equates to 264.05, to end at 10,569.29.
It was the best day for the Dow and S&P 500 since Nov. 30 and the best for the Nasdaq since Dec. 29. Every Dow component ended Friday up.
Friday's rally helped stocks end in positive territory for the week, which was the first of the year. The Dow and S&P 500 each closed the week up 1.5%. The Nasdaq advanced 1%.
The December nonfarm payrolls report showed that the U.S. economy added 223,000 jobs last month, slightly higher than the expected 200,000 jobs economists polled by the Dow Jones expected. In addition, wages grew slower than anticipated, increasing 0.3% on the month where economists expected 0.4%.
"All investors care about is that the data suggests inflation is moving towards the Fed's target," said Michael Arone, chief investment strategist at State Street Global Advisors. "That's all investors care about and average hourly earnings suggest inflation continues to slow. They are excited about that."
Stocks rose again when the ISM's nonmanufacturing purchasing managers' index showed that the services industry contracted in December, a sign that the Fed's rake hikes may be working to slow the economy.
A Friday rally on the back of new economic data left stocks positive on the both the day and week when markets closed.
The Dow ended up 2.1% on the day and 1.5% on the week.
Meanwhile, the S&P 500 gained 2.3% Friday and 1.5% in the week.
The Nasdaq posted the biggest daily win, adding 2.6%. But it had the smallest weekly gain at 1%.
— Alex Harring
All 11 S&P 500 sectors traded up as stocks rallied Friday afternoon.
Materials posted the biggest gain, adding 3.4%. Health care lagged the other 10 sectors, but was still up 1%.
All but one sector were on pace to close the week higher than where each started. Communication services was poised for the biggest gain despite trailing Friday, on track to finish the week up 3.8%. Health care was the sole sector on pace to close the week lower, at 0.1% down.
— Alex Harring
Shares of Biogen resumed trading shortly after 3 p.m. and extended their gains.
The biotech stock trading was up by more than 5.2% after the FDA granted accelerated approval to a new Alzheimer's drug. The stock was up about 3.6% before it was halted at 2 p.m.
— Jesse Pound
The three major indexes all traded up as investors entered the final hour of trading.
The Dow gained 726 points, or 2.2%. The S&P 500 added 2.4%, while the Nasdaq rose 2.7%.
All three indexes are also on pace to end the week up. The Dow and S&P 500 are each on track to gain 1.5% for the week, while the Nasdaq is poised for a 1.1% advance.
— Alex Harring
Party City's stock hit a 52-week low Friday, dropping approximately 50% after the Wall Street Journal reported the retailer was planning to file for bankruptcy within weeks.
A share of Party City stock traded around 17 cents at 2 p.m. That's a 97% drop from the $6.55 price the stock closed at on Jan. 6, 2022.
The stock lost 93.4% of its value in 2022. Its share price has dropped for each of the past five years besides 2020, when it leapt up 162.8% as the pandemic prompted an unexpected shift in consumer spending to goods.
— Alex Harring
Shares of Biogen have been halted for pending news as the Food and Drug Administration announced the accelerated approval of lecanemab, an Alzheimer's drug developed by Biogen and Japanese firm Eisai.
Clinical trials of the new drug showed that it slowed cognitive decline in people with mild symptoms from Alzheimer's disease. Biogen and Esai were also behind another Alzheimer's treatment called Aduhelm which was controversially approved by the FDA last year.
The stock was up 3.56% on the day when it was halted at 2 p.m.
—Jesse Pound
Bond prices rallied with stocks, sending yields down, after two key economic reports signaled inflation my be cooling off as the Fed raises interest rates.
The yield on the benchmark 10-year Treasury was down by 16.2 basis points at 3.56%. The 2-year Treasury yield fell 18.9 basis points to 4.264%. The yield on the 30-year Treasury was down 11.8 basis points at 3.68%.
The spread between the 10-year Treasury and the 3-month Treasury, a key inversion that signals a recession, is the largest since 1982.
Yields and prices move in opposite directions. One basis point equals 0.01%.
—Carmen Reinicke
Check out the companies making headlines in midday trading.
— Sarah Min
Investors may not want to get too excited about Friday's rally.
"This first week of 2023 (and January) has come with the usual raft of major economic data points which on net point to the unusual post-pandemic era combination of a resilient labor market set against eroding business sentiment across the economy," analysts at Goldman Sachs wrote in a Friday note. "Even as Corporate America continues to hire over 200,000 net new workers a month and post over 10mn job openings, both the Manufacturing and Service sector feels like things are getting worse."
Of course, things getting worse is relative to one of the best GDP expansions the U.S. has seen, according to the note. This was partially fueled by pandemic stimulus through 2021.
"But this unusual combination we are now seeing of slow growth, high inflation, and elevated stock market valuations is likely to make for an uneven trading landscape in the year ahead," Goldman said. That's likely to mean modest returns for stocks this year.
—Carmen Reinicke
Tesla reversed a more than 5% slump Friday following news that the electric vehicle maker would lower prices on some models of cars in China.
Later in the day, however, Tesla rose with the broader market. It was up 1.85% at midday.
—Carmen Reinicke
Richmond Federal Reserve President Thomas Barkin said Friday the central bank has to keep working to bring down inflation but can do so with a little less intensity.
"We still have work to do," the central bank official said in prepared remarks. "Inflation is too high, and we will need to stay on the case until it is sustainably back to our 2% target. We have forecasted additional rate increases this year."
Policymakers indicated in December that they're likely to take rates up another percentage point or so before pausing. Atlanta Fed President Raphael Bostic earlier in the day told CNBC he expects the central bank's benchmark funds rate rising past 5%, from its current 4.25%-4.5% target range.
Barking did not specify how high he thinks the rate should go. However, he said the Fed now can move "more deliberately" after raising rates aggressively seven times in 2022.
—Jeff Cox
Health care and social services was the top category for job growth in December, followed by leisure and hospitality, as the U.S. labor market continues to show strength despite the Federal Reserve's aggressive rate hikes.
Meanwhile, two sectors that had been struggling in recent months — retail and transportation and warehousing — snapped back to growth in December.
There were a few areas of weakness, a 6,000 job loss in professional and business services. Read more about what these shifts could mean for the direction of the labor market here.
— Jesse Pound
As oil prices cool, Bank of America is expecting Chevron won't outperform as much as it did in 2022.
The firm expects a modest 9% upside after gaining more than 50% in share value last year. Analyst Doug Leggate also downgraded the stock to neutral from buy, citing limited upside as oil prices stabilize following the jump prompted by Russia's invasion of Ukraine.
"Put simply we see CVX as a victim of its own success – but with <10% upside to our estimate of fair value, we believe the appropriate rating vs North American peers is Neutral," Leggate said in a note to clients Friday.
CNBC Pro subscribers can read more about Leggate's call here.
— Alex Harring
December's employment report helps add to the narrative that the U.S. may be able to avoid a recession, Goldman Sachs chief economist Jan Hatzius said Friday.
"We're growing at a below-trend pace that's necessary to rebalance the economy. Wage growth is gradually decelerating, price inflation is pretty quickly decelerating," Hatzius said on CNBC's "Squawk of the Street." "I think that should be encouraging for a soft landing."
He spoke after the Labor Department reported a 223,000 increase in nonfarm payrolls and a 4.6% annual rise in average hourly earnings, the slowest pace for the latter metric since August 2021.
—Jeff Cox
Wells Fargo analyst Ike Boruchow upgraded shares of Lululemon to overweight, calling the athletics apparel retailer a "rare name with momentum."
"LULU's top-line resilience in the past few years has been nothing short of stunning, with 2022E's topline expected to be essentially double 2019 levels," he said, expecting continued resilience in 2023.
CNBC Pro subscribers can read the full story here.
— Samantha Subin
History shows that the stock market typically rebounds drastically following a year of big losses, according to S&P Dow Jones Indices.
Since 1936, of the nine prior years with double-digit losses, seven of those years experienced double-digit gains the following year (an average of 18%), according to the firm. The S&P 500 lost 19.4% in 2022, suffering its worst year since 2008.
— Yun Li
The December jobs report shows the economy is still adding jobs at a strong rate, but investors focused on the fact that wage growth is slowing, suggesting inflation may be ebbing.
Stocks rallied after the 8:30 a.m. ET employment report showed 223,000 jobs were created in December. Average hourly wages grew at an annual pace of 4.6%, less than the 5% expected by economists.
"The big move was the fact that average hourly earnings came in lower than expected. That suggests that investors are focused intently on inflation, and whether that inflation is moving toward the Fed's target," said Michael Arone, chief investment strategist at State Street Global Advisors.
But he also cautioned that the data could be double-edged, since it suggests the economy and employment are still strong. That could help keep inflation elevated and keep the Fed hiking more than markets might expect.
The Fed next meets Jan. 31 and Feb. 1. While some economists anticipate a half point hike after that meeting, traders in the futures market put greater odds on a smaller, 25 basis point hike. A basis point equals 0.01 of a percentage point.
"Data like today suggests the Fed could do 50 basis points," said Arone. A more aggressive Fed could create more market volatility.
The Fed has been trying to slow the economy and the hot labor market through its rate hiking, which has taken the fed funds target rate range to 4.25% to 4.50%.
Peter Boockvar, chief investment officer at Bleakley Financial Group said market expectations did not change after the jobs report, and the fed funds futures contract for February was pricing in another 32 basis points of hikes.
"It's pricing 100% chance of a 25 basis point hike, and a 30% chance for an additional 25. Peak fed funds is still at 5%" for July, he said. "The market is still expecting the Fed to go another 60, almost 70 basis points," he said. Boockvar said the end point for the Fed matters more than if it raises by 25 basis points or 50 when it next meets.
--Patti Domm
KeyBanc is expecting shares of Bed Bath & Beyond to fall to 10 cents as the beaten down retailer warns it could seek bankruptcy protection.
Analyst Bradley Thomas reiterated his underweight rating on shares, while slashing his price target to 10 cents from $2. That implies 94% downside from Thursday's close.
Read more on the call from KeyBanc here.
— Samantha Subin
The services sector contracted in December amid a pullback in new orders and production, the Institute for Supply Management reported Friday.
The ISM Services index fell to 49.6% for the month, well below the Dow Jones estimate for a 55.1% reading. The gauge measures the percentage of businesses reporting expansion, with a reading below 50% indicating contraction.
New orders fell 10.8 percentage point while business activity and production dropped 10 points. Prices fell 2.4 points to 67.6%, still a high number but representative of some softening in inflation. Employment also fell, moving down 1.7 points to 49.8% and into contraction territory.
—Jeff Cox
Banks reporting fourth-quarter results next week will miss earnings estimates because they'll need to plow money into loan loss reserves ahead of an expected downturn, according to Morgan Stanley analysts led by Betsy Graseck.
The companies will likely "incorporate a more severe economic outlook" into their scenarios for loan defaults this year, forcing them to set aside more than expected in reserves, Graseck wrote in a note published Friday.
On top of that, banks are likely to disclose bigger-than-expected increases to 2023 expense guidance because of wage inflation, Graseck wrote. She expects the median big bank to guide to about 4% expense growth, above the consensus of 3%.
Her pessimistic view on banks is shared by Deutsche Bank analyst Matt O'Connor, who cut his recommendation on Bank of America and JPMorgan Chase shares to hold from buy on Friday.
For her part, Graseck cut her price targets for Goldman Sachs and Citigroup shares by 7.3% and 8.9% respectively, thanks in part to her thesis.
On the other hand, she favors Wells Fargo, JPMorgan and Northern Trust heading into earnings because each bank could surprise to the upside on revenue and expenses, Graseck wrote.
—Hugh Son