The Economy Lost 23,000 Jobs and Wall Street Threw a Party. The S&P 500 Closed at a Record 7,757.

The S&P 500 closed at a record high on Friday and the Nasdaq Composite finished at its own record, capping the strongest week for major U.S. stock indexes since mid-April — a rally set off by a jobs report showing the American economy shed workers in July.

The S&P 500 rose 0.62% to 7,757.64. The Nasdaq climbed 1.3% to 26,690.62. The Dow Jones Industrial Average added 151.83 points, or 0.28%, to 54,036.93. Over the five trading sessions, the Nasdaq gained roughly 4.86%, the S&P 500 3.37% and the Dow 2.10%.

The catalyst was the Labor Department's July employment report, which showed the economy unexpectedly lost 23,000 nonfarm jobs against forecasts of roughly 80,000 additions — a swing of more than 100,000 from what Wall Street had penciled in. On its face, that is bad economic news. Traders read it as the opposite, because a labor market that is cooling removes the argument for the Federal Reserve to raise interest rates again and gives the central bank room to leave policy on hold at its September meeting.

That reasoning is why technology stocks led the advance. Growth companies, whose value rests heavily on profits expected years out, are the most sensitive to interest rates, and the prospect of the Fed standing pat pushed money back into the sector that had lagged during the summer's rate scare. Treasury yields fell across the curve as the same expectation repriced the bond market.

The advance was unusually broad, which is what technical analysts had been waiting for. Roughly 336 stocks in the S&P 500 finished higher against about 167 that declined, and advancers outnumbered decliners by about two to one on both the New York Stock Exchange and the Nasdaq. That breadth matters because much of this year's climb had been carried by a narrow band of megacap names; Friday's move was not.

Corporate results have reinforced the mood. About 85% of S&P 500 companies that have reported this earnings season have beaten Wall Street estimates, an unusually high hit rate that has let investors treat weak macroeconomic data as a rate story rather than a profits story.

The tension in that trade is obvious and unresolved. The market is now rallying on evidence that hiring has stalled, betting that the Fed's response arrives before the damage does. Earlier this week the government also revised away 103,000 jobs it had previously said existed in May and June, a downgrade that made July's negative print look less like a one-month anomaly and more like a trend. If the labor market keeps deteriorating, the same data that lifted stocks on Friday becomes an earnings problem in the fall.