Stocks Rally after Jobs Report

Stocks finished sharply higher Friday following the better than expected employment report. The data sparked hopes for the end of the recession, but fanned debate over the economic recovery, says S&P MarketScope.

July nonfarm payrolls fell less-than-expected, by 247,000 jobs, much better than the 330,000 drop the markets had expected and comes after 443,000 (revised lower) jobs were lost in June. The unemployment rate fell to 9.4% from 9.5%, instead of an expected rise. However, a large drop in the labor participation rate explains the improvement rather than a slowdown in the number of unemployed, says Beth Ann Bovino, economist at Standard & Poor's.

Average hourly earnings rose 0.2%, compared to a flat reading the month before. The workweek inched up to 33.1 hours versus 33.0 in June.

Among the industries, manufacturing lost 52,000 jobs, and construction lost 76,000 jobs. Government added 7,000 workers, while education and health services gained 17,000.

The news pushed the 30-stock Dow Jones industrial average up 113.81 points, or 1.23%, to 9,370.07. The broad Standard & Poor's 500-stock index gained 13.40 points, or 1.34%, to 1,010.48 -- a 10-month high. And the tech-heavy Nasdaq composite index rose 27.09 points, or 1.37%, to 2,000.25.

Treasuries plunged Friday following the jobs report, which some economists say could eventually lead the Fed to tighten interest rates, says S&P MarketScope. The 10-year notes fell 23/32 to 94-04/32 for yield of 3.856%. Some traders were bracing for next week's record $75 billion 3-pronged refunding package, says S&P MarketScope.

The dollar index jumped 0.94 to 79.01, and gold futures were flat. Crude oil futures were off 68 cents to $71.26.

"Though the upside surprises in the July employment report have supported a more optimistic outlook on the economy's recovery, many economists aren't yet willing to fully jump on the growth bandwagon," wrote Action Economics in a note Friday. It added that some question the relative "strength" in today's data and whether the momentum can be sustained. Plus, "uncertainty over upcoming economic reports abounds given the amount of noise in the data thanks to various fiscal policy measures, especially the "cash for clunkers" program," said Action Economics.

Next week, the 2-day FOMC meeting concluding on Wednesday will be a major focus. "No one expects any change to the 0% to 0.25% target range, but a change in rhetoric is likely," says Action Economics.

Investors will also have plenty of economic reports to sift through, including retail sales and industrial production.

Among stocks in the news Friday, American International Group (AIG) shares led financial stocks higher after the company turned profitable after six quarters of losses. The insurance giant, which is 80% owned by the U.S. government following its rescue of the company last September, reported income of $1.82 billion, or $2.30 a share, vs. a year-earlier loss of $5.36 billion, or $41.13 a share. The Street was looking for $1.67 EPS. (Excluding capital losses and other items, earnings were $2.57 a share, compared with a prior-year loss of $10.15.) Revenue jumped 48% to $29.53 billion. AIG said net premiums written from General Insurance Operations fell 19%, while premiums and other considerations from Life Insurance & Retirement Services Operations fell 15%. However, it says this is its first quarterly profit since the third quarter of 2007, as certain businesses stabilized and results reflected positive valuation changes. AIG also said it achieved several important milestones in its restructuring program. Hansen Natural (HANS) shares jumped after the company posted $0.60, vs. $0.51 a year ago, second quarter EPS on 6.4% net sales rise. It says record revenue of $300.2 million attributed to sustained strong sales of Monster Energy drinks, which continue to grow in excess of the category and achieve further gains in market share. Stifel Nicolaus upgraded the stock to buy from hold.

Another big winner Friday was Crocs (CROX), which posted $0.06 second quarter non-GAAP loss, vs. $0.06 EPS a year ago, on 11% revenue decline. Results were better than expected. The plastic shoe maker expects to generate between $150-$160 million in revenue during third quarter, with $0.06-$0.14 loss per share.

Chiquita Brands International (CQB) posted $1.95, vs. $1.28, second quarter EPS from continuing operations. as lower expenses offset 4% sales drop. Based on the strong performance of its profit-improvement strategies and cost reduction initiatives, as well as better-than-anticipated first half results in both salads and bananas, it sees significantly improved full-year results in 2009, on a comparable basis, vs. 2008. Separately, the board appoints Michael Sims as CFO, replacing Jeffrey Zalla, who is leaving the company to pursue a new business venture.

Beazer Homes USA (BZH) reported $0.72 second quarter loss, vs. $2.85 loss, on 48% revenue decline. Street was looking for loss of $1.53. S&P kept hold opinion and raised target price.

NVIDIA (NVDA) posted $0.07, vs. $0.13, second quarter non-GAAP EPS on 13% revenue decline. Street was looking for $0.02 loss. Revenue rose 17% sequentially. Sees third quarter revenue of 5%-7% sequentially. S&P raises estimate and target price; keeps hold.

Apollo Investment (AINV) posts $0.35 second quarter net investment income per share. Street was looking for EPS of $0.34. It says second quarter net assets resulting from operations rose to $84.5 million. S&P raises estimate and target price; keeps hold. RBC upgrades to outperform from sector perform. Declares $0.28 quarterly dividend, up from previous dividend of $0.26 paid last quarter.

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