U.S. Stocks Rally to Pare Weekly Loss on Payrolls Report

By Oliver Renick and Callie Bost

Oct. 3 (Bloomberg) -- The U.S. jobless rate declined to a six-year low of 5.9 percent in September and employers in the U.S. added more workers than projected. The 248,000 gain in payrolls followed a 180,000 August increase that was bigger than previously estimated, the Labor Department reported in Washington. Peter Cook reports on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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U.S. stocks rallied, paring a second straight weekly loss in the Standard & Poor’s 500 Index, as a better-than-forecast payrolls report and expansion in service industries boosted confidence in the world’s largest economy.
The S&P 500 (SPX) rose 1.1 percent to 1,967.9 at 4 p.m. in New York, its best gain in almost two months. The benchmark gauge lost 0.8 percent this week. The Dow Jones Industrial Average climbed 208.64 points, or 1.2 percent, to 17,009.69. The Russell 2000 Index jumped 0.8 percent, trimming its drop for the week to 1.3 percent. Trading in
S&P 500 companies was 13 percent above the 30-day average.
“This is considered good news in the market today because it’s been validated by a lot of economic data coming out supporting job growth and economic growth,” Jonathan Corpina, senior managing partner at Meridian Equity Partners who works on the floor of the New York Stock Exchange, said by phone. “I don’t think this changes the Fed’s plans at all.”
Stocks rallied as the U.S. jobless rate declined to a six-year low of 5.9 percent in September and employers added 248,000 in payrolls, followed a 180,000 August increase that was bigger than previously estimated. The median forecast of economists in a Bloomberg survey called for a 215,000 advance.

Photographer: Richard Drew/AP Photo

Traders Anthony Riccio, left, and Patrick Casey work on the floor of the New York Stock Exchange.

“This allays the fears about growth and offsets what we’re seeing in Europe,” Doug Cote, chief market strategist at Voya Investment Management LLC, said by phone. His firm oversees about $215 billion. “There’s a consistent downward trend in unemployment. It bodes well for not only future GDP growth, but future corporate profits as well.”

Interest Rates

Stocks tumbled this week amid signs of economic weakness in Europe and geopolitical turmoil as the Federal Reserve is on course to end its bond-buying program this month. Investors have been concerned the central bank may raise interest rates sooner than anticipated as the U.S. economy gains strength.
Fed policy makers are trying to determine the extent of labor-market slack. Sustained, elevated gains in hiring are needed to help bring about faster wage growth and put the expansion in a self-reinforcing cycle of more consumer spending and employment opportunities.
More hiring and stock-market gains are boosting Americans’ wealth and encouraging them to keep spending. Separate data today showed service industries grew in September, capping the strongest quarter of expansion in more than 10 years for the biggest part of the U.S. economy.
While the Institute for Supply Management’s non-manufacturing index fell to 58.6 from the prior month’s 59.6, the third-quarter average was the highest since the first three months of 2004. Readings above 50 signal expansion.

Earnings Season

Investors will be watching earnings next week as corporations begin to report third-quarter results. Alcoa Inc. unofficially starts the season on Oct. 8.
The Russell 2000 rebounded 1 percent yesterday on speculation that a recent selloff was overdone and as concern faded that Europe’s stimulus plans won’t be enough to revive the region’s economy. The gauge of small-cap companies closed the previous day more than 10 percent below its record in March, the common definition of a correction.
The S&P 500 is down 2.2 percent from an all-time high reached Sept. 18. The benchmark index is still up about 6.5 percent for the year. The gauge has not had a decline of four straight days this year, and has not dropped more than 10 percent in three years.

Volatility Gauge

The Chicago Board Options Exchange Volatility Index (VIX) slid 10 percent to 14.55 today, dropping for a second day. The gauge of S&P 500 options prices soared 36 percent in September.
Health-care and financial shares gained more than 1.4 percent for the biggest advance among the 10 main industry groups in the S&P 500. Consumer-discretionary and industrial companies jumped more than 1.3 percent.
Mylan Inc. increased 8 percent to $50.23. The generic-drug maker forecast earnings will be at least $1.12 a share in the third quarter, exceeding a previous projection of no more than 95 cents. Analysts had estimated 94 cents.
Covidien Plc jumped 5.7 percent to $93.89 after Medtronic Inc. said it intends to use about $16 billion in external financing to buy Covidien, reaffirming its commitment to complete the acquisition of the drugmaker. Medtronic climbed 3.5 percent to $65.02.
Salix Pharmaceuticals Ltd. added 1.2 percent to $152.87 after people familiar with the matter said the drugmaker is in talks for a sale to Actavis Plc. Though no deal is imminent, an agreement between Salix and Actavis has become more likely in the past week, the people said. Botox maker Allergan Inc.’s effort to acquire Salix stalled in recent days over valuation concerns, they said.

Airlines Soar

The Dow Jones Transportation Average (TRAN) rallied 2.1 percent, the most since March.
Airline stocks climbed as Brent crude fell for a fourth day, headed for a bear market. United Continental Holdings Inc. advanced 4.7 percent to $48.28 and American Airlines Group Inc. increased 6.8 percent to $36.23.
JetBlue Airways Corp. jumped 5.1 percent to $11.13 after Raymond James raised the company to market perform from underperform and Deutsche Bank added the stock to a short-term buy list.
Cliffs Natural Resources Inc. lost 17 percent to $8.32. Nomura Holdings Inc. cut its rating to on the stock to reduce, the equivalent of a sell, from buy.