The U.S. stock market is closing higher after a bumpy start, with investors encouraged by a big uptick in hiring.
The government says that the U.S. economy added a stronger-than-expected 195,000 jobs last month. That helped investors shake off worries about the Federal Reserve scaling back its economic stimulus, which spooked markets early.
The gains tapered off within the hour, and all the major indexes dipped briefly into the red. By market close, all three of the major indices were up by around 1 percent. The Dow Jones industrial index (^DJI) was up 147 points to 15,135. The S&P 500 (^GPSC) rose to 1,631 and the Nasdaq (^IXIC) rose to 3,479.
"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, Calif., 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.
As investors bought stocks, they 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 2.73 percent from 2.51 percent late Wednesday.
Relatively few shares changed hands Friday because many traders were still on vacation after the Fourth of July holiday Thursday. Light volume can make the market volatile, because it can be moved by trading in fewer shares.
Traders also noted that U.S. stock indexes were playing catch-up after missing out on Europe's big gains Thursday.
The calming effect didn't last long: Markets were down throughout Europe on Friday, as investors there fretted over whether the Fed would pull back.
As for U.S. government bond trading, investors have been selling 10-year Treasuries for weeks in anticipation of a Fed pullback. As recently as May 3, the yield on the 10-year note was 1.6 percent. The current yield, while still low by historical standards, has created a sea change in the way investors view bonds.
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."
For the past three decades, bond interest rates have tended to move down rather than up, so the recent gains are throwing many investors for a loop, noted Craig Fehr, an investment strategist at Edward Jones in St. Louis.
"This is catching a lot of bond investors off guard," said Fehr. He's been telling clients to trim their holdings on long-term bonds.
The effects of potentially higher interest rates 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.
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 Egyptian military ousted President Mohammed Morsi, and the country continues to erupt in protests.
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 combined 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:Among stocks making big moves:
• KB Home (KBH) fell 64 cents to $18.07. Beazer (BZH) Homes lost 18 cents to $17.22.
• Newmont Mining (NEM) fell, hurt by a big dip in gold prices. The stock was the biggest decliner on the S&P 500. It lost $1.24, or 4 percent, to $27.78.
• Restoration Hardware (RH), 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 $1.28 to $74.65.