Stocks Soar After Jobs Data, Debt Ceiling Deal

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The May jobs report came out ahead of Friday's opening bell and market participants liked what they saw.

Sentiment also got a boost after the Senate last night passed a bill to suspend the debt ceiling, effectively averting a U.S. default. As a result, stocks jumped out of the gate and rallied hard into the close.

Taking a closer look at today's May jobs report shows the U.S. added 339,000 payrolls in May, well above what economists were expecting. However, the unemployment rate rose to 3.7% from April's 3.4%, wage gains grew at a slower pace than the previous month, and the average work week ticked lower.

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"While strong payroll job gains and wage increases support inflation hawks, job losses for the self-employed, additions to the labor force, an increasing unemployment rate, and a shorter workweek provide a different perspective for inflation doves," says José Torres, senior economist at Interactive Brokers.

While Torres believes economic data we've seen in recent weeks points to another quarter-point rate hike at the next Fed meeting, futures traders are currently pricing in a 74.8% chance the central bank will pause later this month, according to CME Group.

More clues on the Fed's potential monetary policy path could come after the release of the next consumer price index (CPI) report, which is due out in two weeks.

2 booming blue chip stocks

At the close, the Nasdaq Composite was up 1.1% at 13,240 and the S&P 500 had added 1.5% to 4,282. But it was the Dow Jones Industrial Average (+2.1% at 33,762) that outperformed today thanks to impressive gains for blue chips 3M (MMM) and Caterpillar (CAT).

Shares of MMM jumped 8.8% after Bloomberg said the maker of Post-It notes struck a tentative deal to pay $10 billion to settle claims its perfluoroalkyl and polyfluoroalkyl substances (PFAS), also known as "forever chemicals," polluted water systems across the U.S. CAT stock, meanwhile, soared 8.4% on no apparent news.

OPEC+ meeting on tap

It wasn't just blue chip stocks that saw outsized gains today. Indeed, Friday's market rally was broad based, with both small and mid-cap stocks joining in on the fun. Sector-wise, materials stocks (+3.4%) led the way higher, followed closely by energy stocks (+3.0%).

It's certainly worth keeping an eye on oil stocks in the near term, with the Organization of the Petroleum Exporting Countries and its allies (OPEC+) gathering in Vienna this weekend to discuss oil output. The cartel unexpectedly cut production levels at its last meeting, lighting a fire under oil prices and energy stocks. And last week, Saudi Arabia's oil minister, Prince Abdulaziz bin Salman, warned that bearish market speculators should "watch out."

"No one wants to be short crude going into a weekend OPEC+ meeting," says Edward Moya, senior market strategist at currency data provider OANDA. And while the oil market seems doubtful another output cut consensus can be reached between the Saudis and Russians, "traders should never underestimate what the Saudis will do and leverage during OPEC+ meetings," Moya adds.

With over a decade of experience writing about the stock market, Karee Venema is the senior investing editor at Kiplinger.com. She joined the publication in April 2021 after 10 years of working as an investing writer and columnist at a local investment research firm. In her previous role, Karee focused primarily on options trading, as well as technical, fundamental and sentiment analysis.