The Dow is up 500 points in topsy-turvy trading after solid jobs report

It took them a few hours, but investors finally decided that good economic news is good for Wall Street.

The Dow was up more than 500 points, or 1.7%, in late afternoon trading. It was a wild day for stocks, with the Dow surging more than 300 points after the opening bell before briefly turning negative in the late morning. The S&P 500 was up 1.8%, having also clawed its way out of the red.

The Nasdaq was up 1.3%, well off its lows from earlier in the session. The tech-heavy index swung more than 500 points from its low to high points of the day.

The stock surge came following a solid February jobs report Friday, with 379,000 jobs added last month. The jobs gains were much bigger than expected and the unemployment rate inched down to 6.2% — a good sign for the economy.

But these same metrics are raising inflation fears, which explains the brief sell-off Friday. It’s also why investors have been on edge this year as the economy recovers from the Covid-19 pandemic.

A lot of work remains to be done: The United States is still down 9.5 million jobs from February 2020, before the pandemic hit. But as the economy recovers from the Covid-19 pandemic, investors are worried about rising inflation pressures.

Stocks plunged Thursday after Federal Reserve chairman Jerome Powell suggested that the central bank was willing to tolerate higher inflation and rising bond yields.

Tech stocks have been hit particularly hard, sending the Nasdaq into correction territory at one point Friday — more than 10% below its closing high of 14,095.47 on February 12.

The Nasdaq is still down 2% in the past week, compared to a 1.6% gain for the Dow. The S&P 500 is up 0.6% for the week.

Shares of Amazon, Netflix and Tesla have all been slammed during the momentum stock sell-off.

Tesla fell more than 4% alone Friday and is down 12% this week. That electric slide has also hurt the popular ETF Ark Innovation that’s run by Cathie Wood, who has been a big backer of Tesla and other momentum darlings. Ark Innovation fell 2% Friday and is down about 11% this week.

“There is a continuation of this rotation out of growth stocks and other crowded trades into more cyclical companies,” said Jeff Schulze, investment strategist at ClearBridge Investments.

Along those lines, energy stocks are market leaders this year as oil prices surge on economic recovery hopes. Banks and other financials also are doing well. That’s not necessarily a bad thing.

“Investors are having to do some repricing of stocks,” said Steve Wyett, chief investment strategist of BOK Financial. “Last year, the market outperformed the economy. This year, the economy is going to outperform the market.”

This trend may not end anytime soon. Bond yields crept higher again Friday morning after the jobs report, with the 10-year Treasury bond inching up to about 1.56%. While that is still historically low, it is a significant spike from levels below 1% at the start of 2021.

One strategist said he believes that the big spike in long-term rates this year might be close to ending. It’s going to be difficult for yields to climb that much higher.

“This yo-yo behavior in the bond market signals that we’re getting more towards a balancing point for the 10-year yield,” said Alex Veroude, chief investment officer for North America with Insight Investment.

And Schulze said that rates are still low enough to support a continued economic rebound. But the trend is worth watching.

“Higher rates are a positive, not a negative. Rates are going up for the right reasons – better growth and an economic recovery,” he said. “As long as the rate rise is measured, the Fed will be okay with that. But if the 10-year yield gets to 2% in short order, we could get change of the Fed’s rhetoric.”