Adam Shell, USA TODAY
NEW YORK -- The stock market rally powered by a drop in the unemployment rate to 7.8%, its lowest level since January 2009, boosted the Dow Jones industrial average to a fresh five-year high even as other benchmark indexes closed lower.
A jobs report-driven rally lost steam in the afternoon but didn't prevent the Dow from closing up 34.79 points to finish at 13,610.15. The Standard & Poor's 500 index ended down 0.47 points to 1,460.93, and the tech-laden Nasdaq composite index finished down 13.27 points to 3,136.19.
Crude oil took a hit, closed down $1.84 to $89.87, a 2% drop for the day.
The stock market, fueled in large part by a Federal Reserve-powered stimulus, had been on track to sail past bull market highs it notched in September. If the gains had continued, benchmark indexes would have closed at new highs.
The government reported that 114,000 jobs were created last month, which was basically in line with what analysts were expecting. The number of jobs created in July and August were also revised upwards.
Wall Street analysts polled by Reuters were expecting September payrolls to expand by 113,000, down from the upwardly revised 142,000 jobs added in August. They expected the unemployment rate to tick up from to 8.2%, from 8.1% in August.
"The number was not bad for stocks but it wasn't good enough to be a major, major market mover," says Mark Lamkin, CEO and chief market strategist at Lamkin Wealth Management.
The knee-jerk stock rally could also face headwinds due to the fact that some Wall Street traders don't trust the sharply lower unemployment rate. Conspiracy theories abound, with some traders wondering aloud if the numbers are being manipulated by the Obama administration to boost his election chances.
"These unemployment numbers are rigged," warned Gary Katlbaum, president of Kaltbaum Capital Management in a research note to clients.
"The 8% unemployment rate has been a headline number for the past two years, so it was imperative that this administration got it under that number before the election."
Still, if the rally holds into the close, the Dow Jones industrial average and Standard & Poor's 500 index have a shot at closing at fresh bull market highs and their highest levels since December 2007.
Lamkin says while an unemployment rate below 8% looks good and makes headlines, the fact that the economy is still not generating the 200,000 to 250,000 jobs needed to bring the jobless rate down more sharply will keep investor bullishness from getting overly optimistic.
The jobs issue is critical to investors, not only because it offers a window into the economy's health, but also because the trajectory of the unemployment rate has political and policy implications. The health of the job market could influence whether President Obama gets re-elected or Republican challenger Mitt Romney wins the White House.
Lamkin says today's employment news from the Labor Department was a "debate and political campaign mover." He says the lowest jobless rate since Obama took office will give the president a boost, following a so-so performance in Wednesday's first presidential debate. Republican challenger Mitt Romney, however, will be able to jump on the fact that job growth is still tepid at best, Lamkin adds.
The monthly jobs report has taken on added significance for investors ever since Federal Reserve chairman Ben Bernanke last month specifically linked the duration of the central bank's easy-money policies to the health of the jobs market. Bernanke has said the Fed will continue to add stimulus to financial markets until the unemployment rate, now at 7.8%, comes down sharply and the economy is healthy enough to generate jobs at a quick enough pace on its own.
The solid September employment report, however, was not strong enough to cause the Fed to take its foot off the stimulus accelerator, Barclays analyst Michael Gapen wrote in a report. And that's bullish for stocks, as well.
"We don't see the sharp decline in the unemployment rate as changing the calculus for the Fed at this stage," Gapen noted. The Fed, he says, will continue to purchase $85 billion of long-term Treasury bonds and mortgage-backed securities each month.
The Fed's bond-buying program helps stocks because it lowers borrowing costs and injects billions of dollars into the financial system.