While the major indexes, on the surface, had a muted reaction to the jobs numbers, a look at the individual parts of the market showed investors were actively reshuffling their portfolios.
Dividend-paying stocks, which are typically bought for their higher-than-average payouts when interest rates and bond yields are low, dropped sharply on Friday. The Dow Jones utility index, a basket of 15 dividend-paying utility stocks, sank 4 percent.
In contrast, bank stocks rose sharply as investors bet that higher interest rates would translate into higher profits, since they may be able to charge more for lending. JPMorgan Chase rose $2.02, or 3 percent, to $68.46, Bank of America rose 64 cents, or 3.7 percent, to $17.95 and Morgan Stanley rose $1.53, or 4.5 percent, to $35.41.
By nearly every account, the October jobs report gave the Fed exactly what they wanted. The Labor Department said U.S. employers added 271,000 jobs, far more than the most hopeful of expectations, and the unemployment rate dipped to a fresh seven-year low of 5 percent, from 5.1 percent. The burst of hiring, the most in 10 months, filled jobs across a range of industries.
Fed fund futures, which are securities that bet on which way the Fed will move interest rates, now show a 74 percent chance of the central bank raising rates in December, up from 60 percent on Wednesday and up from well below 50 percent as recently as late summer. But the size of the predicted interest rate increase remains modest. Investors expect interest rates will go from their current 0-to-0.25 percent levels to 0.5 percent.
The Dow Jones industrial average rose 46.90 points, or 0.3 percent, to close at 17,910.33. The Standard & Poor’s 500 index fell less than a point to 2,099.20 and the Nasdaq composite rose 19.38 points, or 0.4 percent, to close 5,147.12.
The bond market’s reaction to the jobs number was far more volatile than the stock market’s, with bond prices sinking as investors scaled back their holdings of Treasuries and safer investments.
The benchmark 10-year U.S. Treasury note rose to a yield of 2.32 percent from 2.23 percent on Thursday, a big move for that security. The two-year note jumped to a yield of 0.89 percent, a five-year high for that note, from 0.83 percent the day before.
The data also caused the dollar to rise sharply against its major currency counterparts. The euro fell to $1.0742, its lowest level in six months, and the dollar rose against the Japanese yen to 123.19.
The stronger dollar caused a selloff in commodities as well. Benchmark crude oil fell 91 cents, or 2 percent, to $44.29 a barrel and Brent crude, which is used to price international oils, fell 56 cents, or 1.2 percent, to $47.42 a barrel. Gold fell $16.50, or 1.5 percent, to $1,087.70 an ounce, silver fell 29 cents, or 2 percent, to $14.69 an ounce and high-grade copper fell a penny, or 0.6 percent, to $2.242 a pound.
In other energy trading, heating oil rose less than a cent to $1.49 a gallon, wholesale gasoline futures rose a penny to $1.37 a gallon and natural gas rose 0.7 cent to $2.371 per 1,000 cubic feet.