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Stocks rise as investors parse jobs report

July 5, 2013

NEW YORK (AP) — Investors didn’t know what to make of the jobs report Friday: They were cheered by a big uptick in hiring but worried that the good news will spur the Federal Reserve to scale back its economic stimulus.

The confusion was reflected in morning trading. U.S. stock indexes shot higher when the market opened, an hour after the Labor Department reported that the U.S. economy had added a stronger-than-expected 195,000 jobs last month.

But the gains tapered off within the hour, and all the major indexes dipped briefly into the red. By early afternoon, however, the Dow Jones industrial average was up 96 points, or 0.6 percent, to 15,084.

The Standard & Poor’s 500 rose 10 points, or 0.6 percent, to 1,626. The Nasdaq composite was up 24 points, or 0.7 percent, to 3,468.

“I think the initial reaction was, ’Yay, all these people are employed, and then, ‘whoops,’” said David Brown, chief market strategist at Sabrient, a Santa Barbara, California, research firm for institutional investors.

That’s because the Federal Reserve, led by Chairman Ben Bernanke, has been propping up the economy by buying bonds and keeping interest rates low. Investors know that the Fed isn’t going to continue the stimulus forever, but they worry that developments like Friday’s positive jobs report will make the Fed yank away the stimulus too soon and reveal an economy that can’t stand on its own.

The jobs picture “gives Bernanke more of a mandate to slow down his bond buying,” Brown said.

The market’s bumpy reaction Friday shows the paradox at work in the stock market lately. The Fed’s deep involvement in the economy — and its impending pullout — has meant that good news for the economy hasn’t always translated into big gains for stocks.

As investors bought stocks, they also sold bonds, another sign that they think the Fed will tamp down its bond buying. The yield on the 10-year Treasury note jumped to 2.65 percent from 2.51 percent late Wednesday.

Investors have been selling bonds for weeks in anticipation of a Fed pullback. As recently as May 3, the yield on the 10-year note was 1.6 percent.

Jordan Waxman, managing director and partner at HighTower, a wealth management firm in New York, said investors who had fled to bonds because they seemed safe didn’t like their recent performance.

“It’s like going to your favorite restaurant month in and month out, and then one day you see a rodent running across the restaurant,” Waxman said. “It’s going to be a while before you go back.”

The effects of potentially higher interest were evident throughout financial markets. Stocks for small banks rose because investors believe those companies will benefit from higher loan rates

But homebuilder Lennar was the second-biggest decliner on the S&P 500, losing $1.92, or 5.4 percent, to trade at $33.43. Investors worry higher interest rates will make mortgages more expensive, although rates will still be low historically.

Stocks in Europe fell because investors there also worried over a premature pullout by the Fed. On Thursday, the European Central Bank and the Bank of England had sought to soothe markets by saying they’d keep interest rates low for the foreseeable future.

Trading volume in the U.S. was light Friday, which added to the volatility because the market can be moved by fewer shares changing hands. Friday marked the end of a week shortened by the Fourth of July holiday.

The price of oil rose $1.65, or nearly 1.6 percent, to $102.89 a barrel in New York. That could signal investors are optimistic about U.S. manufacturing and the broader economy — or it could mean they’re unnerved by political unrest in Egypt. On Wednesday, the military ousted Egyptian President Mohammed Morsi.

The dollar rose, which likely means that investors were feeling confident about the U.S. economy.

As for the U.S. jobs report, investors said it represented an economy on the mend, not an economy fully healed.

The 195,000 additional jobs in June handily beat expectations for an increase of 165,000 jobs. The government also said that the economy added 70,000 more jobs in April and May than previously thought.

But there were also reasons for caution. More than half the job additions came from hotels, restaurants, entertainment and retail, which are usually lower paying.

Among stocks making big moves:

—KB Home fell 76 cents, or 4 percent, to $17.95. Beazer Homes lost 71 cents, or 4 percent, to $16.69.

—Newmont Mining fell, hurt by a big dip in gold prices. The stock was the biggest decliner on the S&P 500. It lost $1.59, or 5 percent, to $27.43.

—Restoration Hardware, which sells high-end home products, fell after disclosing that an unnamed group of stockholders plan to sell some of their shares. The stock price fell $1.35, or 1.8 percent, to $74.58.

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