U.S. stocks closed more than 1.5 percent higher Monday, extending Friday's surprise intraday reversal, as investors digested the implications of the jobs data on the timing of a rate hike and awaited quarterly earnings.
"Investors increasingly believe any Fed action is off the table for the rest of the year," said Jack Ablin, chief investment officer at BMO Private Bank. "It would seem to me the Fed was reluctant to raise rates in September. Now we had a lousy jobs report, (which was) really the only shed of consistently positive news."
"There is a technical element to (the stock market gains). It just remains to be seen if that holds," he said. 'It's all going to be about earnings season. If history repeats itself (they're) going to beat very lowered expectations and that should be taken as a positive."
The Dow Jones industrial average traded about 300 points higher and briefly topped its 50-day moving average for the first time since July 21. IBM, Goldman Sachs and Caterpillar contributed the most to gains.
The Nasdaq composite swung back into positive territory for 2015, while the Dow and S&P held several percentage points lower for the year so far.
The Nasdaq underperformed the two other major averages as the iShares Nasdaq Biotechnology ETF (IBB) gave up initial gains to trade 0.8 percent lower and Apple tried to hold half a percent higher.
The S&P 500 advanced nearly 2 percent, trying for its first five-day streak of gains this year. Industrials and energy rose more than 2.5 percent to lead all sectors higher.
Crude oil settled up 72 cents at $46.26 a barrel.
"The three best-performing sectors (this morning) were the most beat-up coming into the week," said Art Hogan, chief market strategist at Wunderlich Securities. It's "a turn in an oversold sector."
"I think we had a very successful retest of the August lows so there's reason for optimism," said James Meyer, chief investment officer at Tower Bridge Advisors. "But we're not out of the woods yet. ... It's not completely complete that you can say 'all clear.' In fundamental terms I think we overbid it on the pessimistic side."
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, dipped below 20 in intraday trade for the first time since Sept. 17, when it briefly fell below 18 just after the Fed statement was released.
"We actually have implied volatility slightly below realized volatility," said Daniel Deming, managing director at KKM Financial. "Overall the fact that we were able to hold the low end of the range and are back in the middle of the range has reduced demand for (volatility) options. I think from a short-term perspective it's alleviated some of the immediate concern."
All three major averages gained to come within 10 percent of their 52-week highs, out of correction territory. The Russell 2000 remained in correction mode, about 12 percent from its 52-week high.
Analysts also noted some gains due to a "short squeeze" as short sellers rushed to cover positions as stocks rose.
On Friday, the Dow and S&P closed up more than 1 percent for their biggest reversal in four years.
Analysts attributed the turnaround mostly to technical factors. Stocks initially sold off sharply Friday after a weaker-than-expected September nonfarm payrolls report. Few analysts found any positives from the data, which showed creation of 142,000 jobs and revised August and July figures lower.
Unemployment held at 5.1 percent, according to the Labor Department. The participation rate plunged to 62.4 percent, meaning the Fed may not be able to raise rates this year, which would remove some uncertainty for investors.
In Monday's earnings news, The Container Store is due to report after the bell.
Third-quarter earnings season kicks off later in the week with PepsiCo, Alcoa and a few other companies reporting. Earnings are expected to decline 3.9 percent for the S&P 500, according to Thomson Reuters.
In Europe, stocks closed more than 2.5 percent higher after the weaker-than-expected U.S. jobs report dampened expectations of a rate hike this year. Glencore surged to close up more than 16 percent.
Japan's Nikkei and Hong Kong's Hang Seng both rose more than 1.5 percent to 2-week highs. Mainland Chinese markets are closed until Wednesday for the National Day holidays.
"Global equity markets are rallying this morning following Friday's bullish reaction to the jobs report in the U.S. We view last week's price action as characteristic of a bullish shakeout, as per our latest Global Technical Strategy, and would be adding exposure in anticipation of a seasonal fourth-quarter rally," Katie Stockton, chief technical strategist at BTIG, said in a note.
In U.S. economic news, ISM non-manufacturing came in at 56.9 for September, below August's 59 read and expectations of 57.5. The ISM manufacturing report last week showed softness in the manufacturing sector.
"Bottom line, the U.S. service sector certainly moderated in September but an index at 56.9 is still a healthy level of growth for this most crucial and largest part of the U.S. economy. Manufacturing is certainly challenged but the more domestic-dependent services side has been able to weather the global economic slowdown much better," Peter Boockvar, chief market analyst at The Lindsey Group, said in a note.
"What this means for Fed policy is anyone's guess of course at this point but the market is clearly not expecting anything in October and only a 30 percent chance by December," he said.
The final Markit PMI services index for September came in at 55.1, below August's 56.1 and the lowest read since June.
Treasury yields held higher, with the 10-year yield at 2.05 percent and the 2-year yield at 0.61 percent as of 2:24 p.m.
The U.S. dollar traded higher against major world currencies, with the euro below $1.12 and the yen at 120.49 yen against the greenback.
The U.S., Japan and 10 other Pacific Rim countries reached an agreement Monday for the years-in-the-making Trans Pacific Partnership. The trade deal still needs final approval from Congress.
Shares of Twitter spiked more than 5.5 percent, attempting to top its 50-day moving average of $27.85 a share, on news the social media firm named Jack Dorsey permanent CEO.
Shares of Alphabet, the new umbrella company for Google, jumped in their first few minutes of trading Monday.
Both Class A and Class C of Alphabet shares were about 2 percent higher in afternoon trade. Alphabet is identical to Google from a stock market perspective.
In afternoon trade, the Dow Jones Industrial Average gained 286 points, or 1.7 percent, at 16,759, with Caterpillar and General Electric leading advancers and Nike leading decliners.
Trian, the $13 billion activist hedge fund run by Nelson Peltz, unveiled Monday a roughly $2.5 billion investment in General Electric. The stake is the largest in Trian's history and is being described as more supportive of the firm's management than many of the fund's other positions.
The Dow transports gained more than 2 percent, on track for five straight days of gains, the first such streak since February.
The S&P 500 traded up 35 points, or nearly 1.8 percent, at 1,986, with energy leading nine sectors higher and health care the only laggard.
The Nasdaq traded up 72 points, or 1.5 percent, at 4,780.
About nine stocks advanced for every decliner on the New York Stock Exchange, with an exchange volume of 561 million and a composite volume of 2.7 billion in afternoon trade.
Gold futures settled up $1.00 at $1,137.60 an ounce.
On tap this week:
Monday
Earnings: The Container Store
Tuesday
Earnings: Pepsico, Yum Brands
8:30 a.m.: International trade
1 p.m.: 3-year note auction
5:30 p.m.: San Francisco Federal Reserve Bank President John Williams speaks
Wednesday
Earnings: Monsanto, Constellation Brands, Acuity Brands
7 a.m.: Mortgage applications
10:30 a.m.: Oil Inventories
1 p.m.: 10-year note auction
3 p.m.: Consumer credit
Thursday
Earnings: Alcoa, Domino's Pizza, Ruby Tuesday
8:30 a.m.: Initial claims
9:30 a.m.: St. Louis Fed President James Bullard speaks
10:30 a.m.: Natural Gas Inventories
1 p.m.: 30-year note auction
1 p.m.: Minneapolis Fed President Narayana Kocherlakota speaks
2 p.m.: FOMC minutes
3:30 p.m.: San Francisco Federal Reserve Bank President John Williams speaks
4:30 p.m.: Fed Balance Sheet/Money Supply
Friday
8:30 a.m.: Import prices
10 a.m.: Wholesale trade
11 a.m.: New York Fed President's William Dudley speaks
1 p.m.: Baker-Hughes Rig Count
1:30 p.m.: Chicago Fed President's Charles Evans speaks.
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