![Stronger than expected employment data and manufacturing gave the market a boost.](/web/20160402001336im_/http://www.smh.com.au/content/dam/images/g/n/w/m/d/r/image.related.articleLeadwide.620x349.gnwnff.png/1459552566880.jpg)
Stronger than expected employment data and manufacturing gave the market a boost. Photo: Michael Nagle
US stocks advanced to the highest levels this year as optimism about the economy and expectations for only gradual increases in interest rates more than offset a selloff in oil.
Signs of strengthening growth in jobs and manufacturing data, coming right after Federal Reserve Chair Janet Yellen this week indicated global risks warranted restraint on lifting rates, presented the best of both worlds for investors on Friday, helping them overcome an early retreat sparked by falling crude prices.
The Standard & Poor's 500 index rose 0.6 per cent to 2072.78 at 4 pm in New York, the highest close in 2016 while pushing this year's gain to 1.4 per cent. The Dow Jones Industrial Average added 107.66 points, or 0.6 per cent, to 17,792.75, the highest since December 4 after reversing a 117-point slide. The Nasdaq Composite Index increased 0.9 per cent to its highest this year. About 7 billion shares traded hands on US exchanges, 17 per cent below the 2016 average.
"We now have a super dovish Fed in our corner and jobs data in line with the trend," said Yousef Abbasi, global market strategist at JonesTrading Institutional Services in New York. "The market initially sold off on the conflict of a dovish message and then beats on every single line of the data, but now people are realising you have a combination of better economic data and a Fed that's being very gentle with the market. It seems the Fed's more concerned with the global picture than the domestic picture."
Shaking off early losses
Equities shook off early losses after data showed manufacturing activity expanded in March for the first time in seven months, in a sign factories are emerging from their worst slump since the last recession. That followed a report showing payrolls and average hourly earnings rose more than forecast, while the jobless rate crept up as more people entered the labour force.
Additional tightening in the job market that sparks bigger pay gains for American workers may convince Fed policy makers that the economy is more insulated to weakness overseas.
The S&P 500 rose after its strongest monthly climb since October. Equities staged a sizzling comeback in the first quarter's final six weeks, as crude rebounded from a 12-year low and central bankers from Asia to Europe and America eased concerns that a global slowdown would deepen as they signalled a willingness to bolster growth. The gauge rose 0.8 per cent in the past three months, marking the first time since 1933 it finished a quarter with a gain after falling at least 10 per cent.
Still, the late-quarter rally came amid light trading, with a three-week stretch that's seen the S&P 500 go its longest without a daily move of 1 per cent in more than a year. The index is now 2.7 percent from a record reached last May. The Chicago Board Options Exchange Volatility index fell 32 per cent in March, snapping its longest streak of monthly increases in four years. The measure of market turbulence known as the VIX slipped 6.1 per cent Friday to 13.10, its lowest since August.
"There's good data across the board and it's consistent with the view that manufacturing sector has bottomed," said Jon Adams, portfolio manager at BMO Asset Management in Chicago, where he helps oversee $US217 billion. "The weaker dollar over the last couple of months will help as well, as will stabilisation in energy prices."
No chance of a rate hike this month
Policy makers have stressed the timing of rate increases will depend on progress in economic data, though the Fed's Yellen boosted stocks this week after saying heightened risks to the global economy warranted a cautious approach to further rate hikes.
Traders are pricing in no chance the central bank will raise rates in April, while the probability of a June move rose to 24 per cent after the jobs report from 20 per cent. Odds for June were 38 per cent a week ago, before Yellen's remarks. November is now the first month with at least even odds of higher borrowing costs, replacing December after today's data.
As the second quarter begins, attention will shift to the earnings season, which unofficially kicks off when Alcoa reports first-quarter results on April 11. Analysts estimate profit at S&P 500 firms fell 9.5 per cent during the period, compared with forecasts for a 4.5 per cent drop two months ago.
In Friday's trading, roles were reversed among the S&P 500's ten main industries, with investors selling last month's biggest winners - energy producers - and scooping up health-care shares which lagged the most in March.
The energy group surged 9.2 per cent last month amid crude's recovery, though the oil selloff today sapped momentum as West Texas Intermediate futures slid 4 per cent. Saudi Arabia's deputy crown prince said the kingdom will only freeze production if Iran and others follow suit. Chevron lost 1.2 per cent, while Transocean and Marathon Oil sank more than 5.2 per cent.
Bloomberg
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