01:04 PM EDT, 06/07/2024 (MT Newswires) -- US equity indexes rose after a surge in nonfarm payrolls sent government bond yields rallying, defying growing bets the Federal Reserve will remain on hold for longer this year.

The Nasdaq Composite climbed 0.1% to 17,190.6, with the S&P 500 up 0.2% to 5,362.7 and the Dow Jones Industrial Average 0.1% higher at 38,928.6. Materials and real estate were among the decliners intraday, while financials and industrials led the gainers.

Futures on all three indexes were lower pre-bell, sharply deteriorating after the release of the nonfarm payrolls data.

In economic news, the May employment report showed nonfarm payrolls rose by 272,000, above the 180,000 jobs increase expected in a survey compiled by Bloomberg. April payrolls were, however, revised downward to a 165,000 increase, and March payrolls were revised lower to a 310,000 gain.

"Payroll growth defied expectations in May, coming in well above the consensus forecast," TD Economics Senior Economist Thomas Feltmate wrote in a note. Job gains have averaged 249,000 over the past three months, but this pace is "unlikely to be sustained indefinitely," with most other metrics showing clear signs that the labor market is cooling.

Hourly earnings rose 0.4%, faster than the 0.3% gain expected and following a 0.2% increase in April. Hourly earnings were up 4.1% year-over-year, an acceleration from the 4% year-over-year gain in the previous month.

"The uptick in average hourly earnings will be something closely watched by (Federal Reserve) officials," Feltmate said. "Still elevated wage pressures are helping to sustain strong gains in service spending and are working against the (Fed's) efforts to bring down inflation across the service sector."

The payroll data complicates the picture for Fed policymakers who will on June 12 unveil their updated Summary of Economic Projections while, most likely, leaving the Fed funds rate unchanged at 5.25% to 5.5%.

With core inflation likely to remain firm in June, the May payrolls data "all but seals the deal against a [rate] cut in each of the next 3 Federal Open Market Committee meetings," Thomas Simons, US Economist at Jefferies, wrote in a note. After the June meeting, the FOMC will meet four more times this year.

The probability of the Fed leaving rates unchanged in September surged to 44% by Friday afternoon from 31% on the previous day, according to the CME FedWatch Tool. The likelihood that policymakers will extend the pause to November soared to 30% from 19%.

While investors still anticipate between one to two rate cuts by year-end, this is reduced from two cuts before the payrolls data and even further reduced from six to seven cuts expected at the start of the year, according to a note from Stifel.

The US 10-year yield catapulted 13.7 basis points to 4.42%, and the two-year rate advanced 14.4 basis points to 4.86%.

West Texas Intermediate crude oil rose 0.2% to $75.71 a barrel.

In company news, Morgan Stanley downgraded Gen Digital ( GEN ) to equalweight from an overweight rating while adjusting its price target to $27 from $28. Shares of Gen traded nearly 4% lower intraday, among the worst performers on the S&P 500.

GameStop ( GME ) on Friday reported lower fiscal first-quarter sales on an annual basis amid the trading frenzy surrounding its stock, which slumped 33.6% intraday.