Stocks surged following a report that the U.S. economy added far more jobs than expected in December and comments from Federal Reserve Chairman Jerome Powell suggesting the central bank would be flexible about future monetary policy moves.

The S&P 500 (^GSPC) rose 3.43%, or 84.05 points, as of market close, led by advances in technology stocks. Gains in tech shares also contributed to steep advances for the Nasdaq (^IXIC), which climbed 4.26%, or 275.35 points. The industrials-heavy Dow (^DJI) climbed 3.28%, or 746.81 points, on signals of potential progress toward a trade deal between the U.S. and China.

The Bureau of Labor Statistics reported Friday morning that the U.S. economy added 312,000 jobs in December, far exceeding expectations of 184,000. Average hourly earnings also rose, increasing 0.4% over last month and 3.2% over last year. The unemployment rate ticked up to 3.9% in December from 3.7% in November, which was due to an increase in labor force participation.

Mark Hamrick, Bankrate.com senior economic analyst, said the U.S. labor market was in a “hiring heat wave” in December.

“There’s a lot to choose from regarding positive developments amid all of the uncertainty, volatility and worries elsewhere in the economy and the broader environment,” he said of the report.

The positive surprise from the latest jobs report bucks a trend among other recent data coming out of other areas of the U.S. economy, many of which have missed expectations. Manufacturing surveys from the New York, Philadelphia, Richmond and Dallas Federal Reserve banks have each disappointed, and both the Institute of Supply Management and IHS Markit’s reports this week pointed to slower expansion in the U.S. manufacturing sector. The Conference Board’s latest reading on consumer confidence sagged to a six-month low, and the housing market has come under pressure from historically high mortgage rates.

On Friday, IHS Markit released its results for U.S. services purchasing managers’ index, which also pointed to softness in service sector business activity. The headline index fell to 54.4 in December from 54.7 in November, indicating expansion at a slower clip for the sector. The pace of new business growth retreated for the third consecutive month, and service providers posted the slowest increase in new orders since October 2017.

The Federal Reserve is back in focus following the blowout jobs report, with investors questioning whether the strength of the labor market will steer policymakers lean toward a more hawkish monetary policy direction to try and stave off inflation. According to Bloomberg data, after the release of the jobs report, Fed funds futures showed that traders now see a lower probability for a rate cut by the end of 2019, with futures contracts showing 11 basis points of Fed cuts for all of 2019 from 16 basis points earlier in the morning. The Federal Reserve raised rates four times in 2018 but signaled fewer rate hikes for 2019 after the Federal Open Market Committee’s last meeting in December.

“From a jobs perspective, I can’t imagine a much better report. From the market’s perspective, this could be really tricky,” said Peter Tchir, head of macro strategy at Academy Securities. “A series of weak data has had the market convinced we get Powell the dove – but if he wants to play hardball with the Powell Put he may feel justified to remain more hawkish than the market would like.”

Powell says Fed is ready to adjust policy

But equities jumped after Federal Reserve Chairman Jerome Powell signaled on Friday that the central bank would be willing to adjust its recently instated path of quantitative tightening if it began to cause issues in financial markets. Powell, speaking at the American Economic Association and Allied Social Science Association meeting in Atlanta, Georgia, said the central bank “wouldn’t hesitate” to adjust normalization of its balance sheet. Currently, $50 billion worth of bonds are rolling off the Federal Reserve’s balance sheet every month, which many investors worry could reduce access to liquidity.

Friday’s comments were largely interpreted as a backtracking from some of Powell’s previous statements regarding the balance sheet. Powell previously said in December that the Fed’s runoff of the balance sheet had been smooth, adding, “I don’t see us changing that” unless there were a “sufficient” negative shock to the economy. The comments had sent equities reeling at the time.

Stocks also got a boost Friday morning after China’s commerce ministry said that China and the U.S. will hold vice ministerial level trade talks in Beijing on January 7 and 8, lifting prospects for a resolution to the ongoing trade tensions between two global economic powerhouses.

Cracks in both the U.S. and Chinese economies have recently begun to show as a result of the trade war.

Earlier this week, new data pointed to slowing growth in major sectors of China’s economy, with the Caixin/Markit Manufacturing Purchasing Managers’ Index pointing to contraction in China’s manufacturing sector for the first time since May 2017. And on Wednesday, Apple (AAPL) – one of the largest public companies in the world and a bellwether of U.S. corporate health – slashed its revenue guidance for the fiscal first quarter of 2019, citing weakness of sales in China as the driving factor for the reduction. Shares of Apple rose 4.27% to $148.26 each as of market close Friday, after declining nearly 10% on Thursday.

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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