US stocks closed the week on a strong note after a volatile session marked by a weak reading of non-farm payrolls which cast doubts on the strength of the economic recovery.

Investors’ bullishness around additional government spending was cooled by a Democratic senator coming out against passing a round of $2,000 stimulus cheques as a first priority for the incoming Biden administration. Stocks pulled back on the news before rebounding to end the session in positive territory.

“I don’t think that’s the end of the world,” said Invesco chief global market strategist Kristina Hooper on the stimulus speed bump, “but it certainly underscores the fragility of such a small majority in the Senate . . . This is a bit of a reality check right now.”

Wall Street’s S&P 500 index climbed 0.5 per cent despite the latest US non-farm payroll data sharply missing expectations; the country lost 140,000 jobs in December compared with an anticipated rise of 71,000. It was the best week for the broader index since the last full week of November. The tech-heavy Nasdaq Composite advanced 1 per cent.

In Europe, the Stoxx 600 closed up 0.5 per cent, taking its weekly gains to almost 3 per cent — its best performance since the vaccine-led rally of mid-November. London’s FTSE 100 ended the week more than 6 per cent higher, its strongest showing since November.

Column chart of % weekly gain for Stoxx 600 showing European equities on track for best week since November

Global stocks have risen this week as traders looked past the violent clashes in Washington on Wednesday when a pro-Trump mob stormed the Capitol and interrupted the confirmation of Mr Biden as president-elect.

“The only noise in markets . . . was a bullish stampede as [they] continued their strong start to 2021,” said Jim Reid, a strategist at Deutsche Bank.

Catherine Doyle, an investment specialist in Newton Investment Management’s Real Return team, said the Georgia vote and expectations for more stimulus were “what’s dominating markets”. Absent any hurdles relating to the vaccine rollout or a new strain of the virus, “it feels like we’re now really on track for a fairly consistent and steady recovery”, she added.

Expectations that additional stimulus will also stoke inflation helped to send the yield on the 10-year US Treasury above 1 per cent this week for the first time since the pandemic roiled markets in March. The 10-year note climbed a further 0.03 percentage points to 1.11 per cent on Friday.

“We are watching inflation as a key risk,” said Mona Mahajan, US investment strategist and portfolio manager at Allianz Global Investors, adding that if inflationary pressures continue to build, “a change in tune from the Fed” could be on the table.

“We don’t think this is the start of a 10-year rotation trade, but it could be two to four quarters of value outperforming growth.”

Line chart of MSCI World price index showing atocks in developed markets set new record high

All three leading benchmarks on Wall Street hit record highs on Thursday, with a broad range of sectors advancing.

“Value” stocks — shares judged to be cheap against their earnings or assets — have performed particularly well.

“Value plays are really working very well in this first week,” said Nadège Dufossé, head of cross-asset strategy at Luxembourg-based fund manager Candriam. The environment is “more constructive for risky assets and for the reflation trade”, she added.

Fast-growing technology companies have also rallied.

“Tech stocks are picking up, indicating that the valuation gap between value and growth will take time to converge until such time as the economy gains more traction,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.

Fahad Kamal, chief investment officer at Kleinwort Hambros, warned that investors should be wary of possible risks, pointing to high equity valuations, growing inflation and the “mountains of debt everywhere”.

“Are we all missing something? Are we in the latter stages of a really heady bull that’s about to crash?” he said.

Brent crude, the international oil benchmark, was up 3.3 per cent at $56.20 a barrel, closing the week with an 8 per cent gain, the best weekly performance in four months. Meanwhile, gold, a haven asset, slipped 3.5 per cent to $1,847 a troy ounce on hopes for a sustained recovery in 2021.

In the Asia-Pacific region, Japan’s Topix closed up 1.6 per cent at its highest point since early 2018, while Hong Kong’s Hang Seng climbed 1.2 per cent.