Stocks rallied Friday, capping the best week since April for the S&P 500, Dow Jones Industrial Average and Nasdaq Composite. The S&P 500 closed at a record high after the August jobs report eased concerns about when the Federal Reserve might raise interest rates.

Jobs data calms rate hike fears

The Labor Department reported Friday that nonfarm payrolls increased by 142,000 in August, below economist estimates of 160,000. The unemployment rate ticked down to 4.1 percent from 4.3 percent in July. Average hourly earnings rose 0.3 percent month over month and 3.7 percent year over year, both matching forecasts.

“This is a Goldilocks report for the market,” said Maria Gonzalez, chief economic strategist at Beacon Advisors. “It shows a cooling labor market without a sharp downturn, which lowers the probability of an imminent rate hike. The Fed can afford to stand pat.”

Investors have been on edge about the central bank’s next move after a string of stronger inflation data earlier in the summer. The jobs report helped relieve that pressure, pushing futures markets to price in a near 90 percent chance that the Fed leaves rates unchanged at its September meeting, according to CME Group's FedWatch tool.

Record close and weekly gains

The S&P 500 climbed 1.2 percent Friday to close at 5,762.48, a new all-time high. For the week, the index gained 2.8 percent. The Dow rose 1.1 percent to finish at 41,310.20, up 2.5 percent for the week. The Nasdaq advanced 1.5 percent to 18,294.87, posting a weekly gain of 3.4 percent.

Technology and consumer discretionary were the best-performing sectors in the S&P 500, each rising more than 2 percent on the week. Financials also gained after Treasury yields dipped, with the 10-year note yield falling to 4.12 percent from 4.23 percent a week earlier.

“The market is responding to the reality that the Fed is not going to tighten policy aggressively,” said James Chen, portfolio manager at Summit Capital. “That gives investors the green light to add risk, especially in high-growth sectors that benefit from lower rates.”

Fed officials offer mixed signals

Several Fed speakers this week offered differing views on the path of policy. Federal Reserve Bank of Atlanta President Raphael Bostic said on Thursday that he is “comfortable” with keeping rates steady, but added that he would need to see more disinflation before considering cuts. Meanwhile, Minneapolis Fed President Neel Kashkari said on Wednesday that the labor market remains strong and that the “next move is less certain.”

The CME FedWatch tool now indicates a 12 percent probability of a rate hike in November, down from 25 percent a week ago. Investors will closely watch the Fed’s September meeting and the central bank’s updated economic projections for further clues.

Outlook: Can the rally persist?

Analysts are divided on whether the market can sustain its upward momentum. Some point to stretched valuations, with the S&P 500 trading at 21.5 times forward earnings, above its five-year average of 19.7. Others argue that a resilient economy and the peak of the rate cycle provide support for further gains.

“The earnings season was solid, and the consumer is still spending,” said Gonzalez. “As long as the Fed doesn't surprise us, the path of least resistance for stocks remains higher.”

Chen added a cautionary note: “We are due for a pullback, but that doesn't change the medium-term trend. This is a market that rewards patience.”

Trading volume was active Friday, with 11.2 billion shares changing hands on U.S. exchanges, above the 30-day average of 10.4 billion. Market breadth was positive, with advancing stocks outnumbering decliners by more than 3 to 1 on the New York Stock Exchange.

Next week, investors will receive data on consumer and producer prices for August, which could further influence expectations for the Fed's policy path.