S&P 500 ETF Jumps 2% On Improved Jobs Report

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Major ETFs rallied across the board Friday thanks to a better-than-expected jobs report that raised hopes the U.S. economy is expanding.

In afternoon trade, the SPDR S&P 500 ( SPY ) surged 2.03%.SPDR Dow Jones Industrial Average ( DIA ) jumped 1.75%.

PowerShares QQQ ( QQQ ), a basket of the 100 largest nonfinancial stocks on the Nasdaq, bounced up 2.14%.

All three ETFs rebounded from a brief pullback to their short-term 50-day moving averages. SPY and DIA are just a hair away from regaining their 52-week highs from early April.

Birinyi Associates noted that Friday was the 11th instance since the beginning of 2011 in which the SPY rallied 2% by noon. In a majority of those instances, it continued higher by an average of 0.7%.

Overseas Markets

Italy and Spain ETFs, which sold off the most this week, soared the highest among all nonleveraged ETFs.IShares MSCI Italy Index ( EWI ) rocketed 7.94%, while iShares MSCI Spain Index ( EWP ) vaulted 7.64%. Both ETFs broke above short-term resistance at their 50-day moving averages and recovered all of their losses from earlier this week.

The Spain government released late Friday a "savings" plan that would trim 102.1 billion euros ($125 billion) over three years, the Associated Press reported. The plan, released to the European Commission, said the country would start creating jobs in 2014 and grow its economy by 1.2%.

Spain and Italy's leaders have pledged to work together to resolve their countries' debt crisis at a meeting in Madrid this week.

IShares MSCI EAFE Index (EFA), tracking developed foreign markets, climbed 3.34%.IShares MSCI Emerging Markets Index (EEM) rallied 3.05%.

Investors poured $6.5 billion into stock funds and $5.84 billion into bond funds in the last week of July on hopes that the European Central Bank and U.S. Federal Reserve would undergo more quantitative easing, according to EPFR Global. Investors pulled $11.72 billion out of money market funds with European money market funds accounting for more than 90% of the outflow.

Emerging market stocks attracted the largest inflow since mid-February. Investors flocked to higher-risk, higher-yielding fixed-income assets such as junk, mortgage-backed and emerging market bonds on expectations that central banks would keep interest rates steady.

Jobs Report

July's employment report showed the U.S. added 163,000 new jobs -- far surpassing expectations of 100,000 jobs. It marked the largest gain since February and broke a three-month string of disappointing results. New jobs were revised downward for June and upward for May.

"This report, naturally, is not without its quirks," Marisa Di Natale, director of Moody's Analytics, wrote in a report. "Large strike effects in a couple industries probably subtracted about 5,000 jobs from payrolls. Also, annual retooling in the auto manufacturing industry typically subtracts workers from payrolls in July, but not as many shutdowns occurred this summer so the gain of 9,000 jobs in that industry is likely a bit overstated. Taken together these effects may be a wash."

The job growth rate will unlikely be this strong over the next few months, Di Natale said. She projects the country will add 120,000 new jobs in August and will see a small increase by year's end.

"Slowing in emerging market economies, the European recession, and uncertainty about fiscal policy here at home are still weighing heavily on business confidence," she wrote.

Undermining the good news, the unemployment rate rose to 8.3% from 8.2%. The unemployment rate rose because 195,000 in the household survey lost their jobs, while 150,000 people left the labor force. The number of unemployed persons rose by 45,000, pushing the unemployment rate up by 0.10 percentage point.

"The household survey details are even more volatile than the payroll data, cautioning against reading much into the decline in that employment measure, although the unemployment rate itself typically nets out the volatility of employment and the labor force together," Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, NY, wrote in a client note. "The data are consistent with an economy that, while not growing strongly, is not continuing to weaken sharply either."

Strong payroll numbers means the Fed will less likely engage in quantitative easing, or money printing, to boost the economy at its next meeting in September.

Follow Trang Ho on Twitter @TrangHoETFs .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: DIA , EWI , EWP , QQQ , SPY

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