By Stan Choe and Alex Veiga
Updated 4:48 pm ET
Wall Street's big rally let off the accelerator on Friday, despite a better-than-expected report on the U.S. job market, amid worries about worsening U.S.-China tensions and whether Washington can deliver more aid for the economy.
The S&P 500 inched up 2.12 points, or 0.1 percent, to 3,351.28 to eke out a sixth straight gain, after being down most of the day. It's back within 1 percent of its record for the first time since February. The Dow Jones Industrial Average added 46.50, or 0.2 percent, to 27,433.48.
Technology stocks took losses, though, on worries that China could retaliate for President Donald Trump's latest escalation against Chinese tech companies. The Nasdaq composite dropped 97.09, or 0.9 percent, from its record to 11,010.98. It's a rare stumble for big tech stocks, which have soared on expectations they can keep raking in profits regardless of the pandemic.
"The Chinese aren't going to take this lightly," said Quincy Krosby, chief market strategist at Prudential Financial. "They've already suggested they might take it to court. The point is the market is projecting we're going to see a ratcheting up of tensions between the U.S. and China, and it could focus on technology."
The day's headline economic report was an encouraging one for investors: The U.S. job market strengthened by more last month than economists had forecast, with employers adding 185,000 more jobs than the nearly 1.6 million that investors expected to see. Analysts said they found some encouraging trends throughout the report, such as a stronger-than-expected rise in average hourly earnings.
"Yes, future employment data will likely slow due to more COVID-19 restrictions, but for now you have to be quite impressed with how far we've come the last few months," Ryan Detrick, chief investment strategist for LPL Financial, said in a statement.
Several areas of the market that tend to rise when investor upgrade their expectations for the economy rallied.
Stocks of smaller companies climbed more than their bigger rivals, and the Russell 2000 index of small-cap stocks jumped 24.56, or 1.6 percent, to 1,569.19. Treasury yields also rose. Financial stocks, which have swung sharply with prospects for the economy and interest rates, had the biggest gains of the 11 sectors that make up the S&P 500. Seven out of 10 stocks within the index rose for the day.
Still, the job report also showed that hiring slowed in July after two months of acceleration, and the job market remains far below where it was before the pandemic.
Analysts said the better-than-expected jobs report may also have removed some of the urgency from talks on Capitol Hill, where Congress and White House officials have been negotiating on a hoped-for deal on more aid for the economy. Both sides had set an informal Friday deadline to reach the outlines of an agreement, including benefits for unemployed workers.
Investors say Washington needs to act quickly because $600 in weekly unemployment benefits from the federal government just expired. The economy has shown signs of improvements since the spring but is still hobbling, and concerns are rising that it could backtrack amid a resurgence in coronavirus counts.
"The market clearly believes that a package is necessary to cushion the downside of the pandemic-induced slowdown in the economy," Prudential Financial's Krosby said. And even though last month's jobs gains were bigger than expected, "it still suggests there's a long way to go to heal the labor market."
Trump is considering executive orders to address some of the issues if Congress doesn't reach a deal, such as evictions and unemployment insurance, but critics question how much impact they would have.
Much of the market's focus was also on moves Trump did make Thursday night: He ordered a sweeping but vague ban on dealings with the Chinese owners of popular social media apps TikTok and WeChat on security grounds.
China's government criticized the move as "political manipulation."
Tensions between the world's two largest economies have been escalating for years, highlighted by the U.S.-China trade war that seemed to have reached at least a temporary truce early this year. But tough talk has continued to flow, with Trump keying in on TikTok in particular recently.
On Friday, the U.S. imposed sanctions on Hong Kong officials, including the pro-China leader of the government, accusing them of roles in squashing freedom in the former British colony.
The escalating U.S.-China tensions helped send tech stocks in the S&P 500 down 1.6 percent, more than quintuple the loss of any of the other 10 sectors that make up the index.
Even Apple, whose stock has been nearly unstoppable through the pandemic, slumped. It fell 2.3 percent for its first drop in eight days.
The yield on the 10-year Treasury rose to 0.56 percent from 0.53 percent late Thursday.
Gold slipped, a rare step back following its record-setting run as investors seek safety amid a weak global economy, trade tensions and low interest rates. An ounce of gold to be delivered in December lost $41.40 to settle at $2,028.00.
Benchmark U.S. crude fell 73 cents to settle at $41.22 per barrel. Brent crude, the international standard, lost 69 cents to $44.40 a barrel.
In China, stocks in Shanghai lost 1 percent. The Hang Seng in Hong Kong dropped 1.6 percent, while Japan's Nikkei 225 slipped 0.4 percent and South Korea's Kospi added 0.4 percent.
In Europe, Germany's DAX returned 0.7 percent, and France's CAC 40 rose 0.1 percent. The FTSE 100 in London added 0.1 percent.
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AP Business Writer Yuri Kageyama contributed.
