Stocks Raise on Job Report

The Dow industrials and S&P 500 capped their third-straight weekly gains at record highs Friday, after a largely as-expected May employment report showed the U.S. economy continuing on a moderate growth path.

The Dow Jones Industrial Average advanced 88.17 points, or 0.5%, to 16924.28.

The S&P 500 index rose 8.98 points, or 0.5%, to 1949.44. The Nasdaq Composite Index added 25.17 points, or 0.6%, to 4321.40.

The U.S. added 217,000 jobs in May, the Labor Department reported, ahead of the 210,000 median estimate of economists in a poll by The Wall Street Journal. The reading marked the first time since 1999 the economy has added at least 200,000 jobs for four-straight months.

The unemployment rate, obtained in a separate survey, was 6.3%, unchanged from April and a touch below economists’ 6.4% forecast.

“It was nice just to see some validation that this post-winter recovery looks to be moving in a positive direction,” said Michael Fredericks, a portfolio manager on the $7.8 billion BlackRock Multi-Asset Income Fund.

The fund has maintained a moderately bullish position on U.S. stocks of late, while selling some fixed-income investments that had risen in price this year. “High quality dividend-paying stocks are going to continue to do well,” he said. “We think that some cyclical parts of the market ought to respond well as the economy picks up.”

But he is also been buying derivatives that protect against a decline in the market, in part because stock investors’ sanguine attitude lately has made it inexpensive to do so. “We’re just trying to buy some cheap insurance” against a pullback, he said.

The Chicago Board Options Exchange Volatility Index—a measure of traders’ expectation for future price swings in the S&P 500—fell 5.7% and was on track to close at a seven-year low.

Small companies’ shares outperformed, recovering from an April slide. The Russell 2000 index added 1% and was up 2.7% for the week, its biggest weekly gain since February.

Short-term oriented investors were buying derivatives that pay off if small-caps rally “in big size” the last few days, some of them in an effort to close out previous bearish bets on that corner of the market, said Jeff Yu, head of single-stock derivatives trading at UBS AG UBSN.VX +1.57% .

“Investors are positioning themselves for a breakout of the slump that small-caps have been in this year,” he said. Year-to-date, the Russell 2000 is still up just 0.1%, lagging behind the S&P 500’s 5.5% advance.

Selling in bonds pushed the yield on the 10-year Treasury note to 2.597% from 2.584% late Thursday.

Gold futures eased 0.1% to $1,252.10 an ounce, while crude oil futures tacked on 0.2% to $102.66 a barrel. The dollar edged higher against the euro, but lost some ground against the yen.

European markets were broadly higher, extending gains seen Thursday after the European Central Bank’s announcement of stimulus measures on Thursday. The Stoxx Europe 600 rose 0.7%, capping its eighth-straight weekly gain.

Asian markets saw weakness, with China’s Shanghai Composite shedding 0.5% and Japan’s Nikkei Stock Average slipping less than 0.1%.

Data-center equipment provider Arista Networks Inc. rallied 28% in its trading debut, after pricing its initial public offering $3 above the price range it had forecast.

VeriFone Systems Inc. PAY +8.57% added 8.6% after reporting better-than-forecast quarterly results and announcing a plan to reduce its employee count by 500.

Hertz Global Holdings Inc. HTZ -9.05% slumped 9.1% after the car rental company said it would have to restate results of the past three years, citing a material weakness in internal financial-reporting controls. Hertz also said fiscal first-quarter results are likely to miss analyst expectations as a result of costs associated with the accounting review.

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