Stocks Tick Up as QE3 Hopes Counter Grim Data

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The markets capped the week at multiyear highs, posting slim gains Friday, after bleak data on the U.S. labor market ratcheted up expectations of more easing from the Federal Reserve.

Today's Markets

The Dow Jones Industrial Average climbed 14.6 points, or 0.11%, to 13306, the S&P 500 climbed 5.8 points, or 0.4%, to 1438 and the Nasdaq Composite gained 0.61 point, or 0.02%, to 3136.

The American economy added 96,000 jobs in August, fewer than the 125,000 Wall Street anticipated. The job gains from June and July also received downward revisions in the order of 20,000 (see chart above).

The unemployment rate unexpectedly fell to 8.1% from 8.3% in July. However, the labor force participation rate, which is a gauge of individuals that are employed or actively seeking employment, dropped to the lowest level since September 1981. That means part of the reason the unemployment rate fell was because people, employed and unemployed, actually left the labor force, according to Dan Greenhaus, chief global strategist at BTIG.

Digging into the data, the private sector tacked on 103,000 jobs, while the government shed 7,000. Average hourly earnings were unchanged at $23.52.

Economists broadly pointed to the report as weak overall, but said it increased the chances the Federal Reserve will take action to boost economic growth. The central bank is already in the process of lengthening the maturity of its balance sheet, but not its size, through a program dubbed "Operation Twist." However, some Fed watchers are looking for the central bank to buy assets outright in a third quantitative easing program.

"Another disappointing month of U.S. employment growth raises the prospect of further action from the Fed, meaning next Thursday's FOMC decision looks set to be a close call," Chris Williamson, chief economist at financial-data firm Markit wrote in an email.

IHS Global Insight Chief Economist Nigel Gault reckons that while the economy is on a "modest growth track," the situation has darkened some.

"Some of the drivers that were previously supporting growth ... are showing signs of flagging in the face of global economic headwinds and domestic policy uncertainty," he wrote in a research note.

Wall Street at Multi-Year Highs

The S&P 500 jumped 2.2% on the week, hitting its highest level since January 2008. The Nasdaq posted an even bigger gain, rallying 2.3% to the best mark since November 2000.

On Thursday, market participants cheered a bond-buying plan crafted by the European Central Bank aimed at tackling the embattled eurozone's debt crisis. Borrowing costs among countries such as Spain and Italy, which were seen as particularly vulnerable to the crisis, have pulled back sharply over the past two sessions. Indeed, the yield on Spain's 10-year bonds fell below the 6% level for the first time since May. The yield fluctuated in the realm of 7.5% just a month ago.

In corporate news, chip maker Intel (NASDAQ:INTC) slashed its third-quarter revenue guidance to a range of $12.9 billion to $13.5 billion from $13.8 billion to $14.8 billion. Pandora (NASDAQ:P) shares plunged 16.7% on a report from the Wall Street Journal that technology heavyweight Apple (NASDAQ:AAPL) is working on a rival custom-radio service.

Also, Smith & Wesson (NASDAQ:SWHC) surged 18% after reporting quarterly results and more bullish guidance that blew Wall Street's expectations out of the water.

Elsewhere, crude oil futures ended higher after a choppy trading session. The benchmark contract traded in New York climbed 89 cents, or 0.93%, to $94.42 a barrel. Wholesale New York Harbor gasoline rose 0.96% to $3.02 a gallon.

In metals, gold surged $34.90, or 2.1%, to $1,741. The precious metal is trading at its highest level since late February.

Foreign Markets

The Euro Stoxx 50 climbed 0.54% to 2539, the English FTSE 100 edged up by 0.30% to 5795 and the German DAX jumped 0.66% to 7215.

In Asia, the Japanese Nikkei 225 soared 2.2% to 8872 and the Chinese Hang Seng surged 3.1% to 19802.