The Dow posted a record closing high on Friday and the Nasdaq ended with a more than 1% gain as a stronger-than-expected jobs report reassured investors who had worried the economy may be getting too weak.
US job gains increased in September by the most in six months, and the unemployment rate fell to 4.1%, the report showed.
The data "basically tells us economic activity in the fourth quarter is likely to remain at a solid pace," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
"It's a good surprise, but I also think it may now slow the pace of rate cuts."
Traders further reduced bets on a 50-basis-point reduction at the Federal Reserve's Nov 6-7 meeting. Traders are now pricing in just an 8% chance of a 50-bps rate cut, down from around 31% earlier on Friday, the CME Group's FedWatch Tool showed.
The Fed kicked off a monetary easing cycle last month with a 50 basis point rate cut.
Small caps and financials outperformed, with the Russell 2000 index up 1.5% and the S&P 500 financials index up 1.6%.
Spirit Airlines shares dropped 24.6% while other airlines jumped after a report showed was in talks with bondholders about a potential bankruptcy filing. Frontier Group shot up 16.4%, while United Airlines rose 6.5% and Delta Air Lines climbed 3.8%.
The Dow Jones Industrial Average rose 341.16 points, or 0.81%, to 42,352.75, the S&P 500 gained 51.13 points, or 0.90%, to 5,751.07 and the Nasdaq Composite added 219.37 points, or 1.22%, to 18,137.85.
Indexes registered just slight gains for the week following worries about increasing tensions in the Middle East. The Dow was up 0.1%, while the S&P 500 was up 0.2% and the Nasdaq was up 0.1%.
The S&P energy index rose 1.1% on the day along with higher oil prices. With the Middle East concerns, the index jumped 7% for the week in its biggest weekly percentage gain since October 2022.
U.S. President Joe Biden said that if he were in Israel's shoes, he would think about alternatives to striking Iranian oil fields, adding he thinks Israel has not yet concluded how to respond to Iran's missile barrage this week.
Rivian shares fell 3.2% after the electric vehicle startup cut its full-year production forecast and delivered fewer vehicles than expected in the third quarter.
Third-quarter earnings for S&P 500 companies are expected to unofficially begin next week. Major financial firms highlight next week's reports, with JP Morgan Chase, Wells Fargo and BlackRock due on Oct. 11.
Bullish investors are hoping results will justify increasingly rich valuations in the stock market. The S&P 500 is up 20.6% for the year so far.
U.S. ports on the East and Gulf coasts reopened, but clearing the cargo backlog will likely take time.
Advancing issues outnumbered declining ones on the NYSE by a 1.72-to-1 ratio; on Nasdaq, a 2.20-to-1 ratio favored advancers.
The S&P 500 posted 33 new 52-week highs and 1 new lows; the Nasdaq Composite recorded 98 new highs and 91 new lows.
Volume on U.S. exchanges was 10.91 billion shares, compared with the 12.03 billion average for the full session over the last 20 trading days.
