Deja vu: Stocks kick off Q2 in the red, then erase losses, turn up

On the first day of the new quarter, the Dow traced out the same pattern it traveled in the first quarter of the year: a big early drop has been followed by a rebound rally that has pushed the blue-chip stock gauge to solid gains for the day.

Driving the volatile trading today was an early negative reaction to tanking Japanese stocks and plunging oil prices. But those negatives were offset by a better-than-expected March jobs report in the U.S. and good news on the domestic manufacturing front, where March data pushed back into expansionary territory after months of suffering through its own private recession. Any signs of a manufacturing bounce back bodes well for the economy.

Wall Street earlier today was also trying to interpret what another strong jobs report might mean for the Federal Reserve's interest rate-hike plans.

After the market's miraculous comeback in the first quarter, when it rallied late in the quarter to erase a double-digit percentage decline to finish up close to 1%, U.S. stocks kicked off the new quarter with a similar trading pattern as it confronted a slew of cross currents that are weighing on investor sentiment.

Employers added solid 215,000 jobs in March

Forty-five minutes after the opening bell on Wall Street, the Dow Jones industrial average, which gained 1.5% in the first quarter and was down 117 points earlier in the session, had erased its gains and turned positive. The rally gained steam in the afternoon and the Dow closed the session up 108 points at 17,793 -- a new 2016 high.

The Standard & Poor's 500 index also set a new 2016 high, rising 0.6% to 2073. The Nasdaq composite index gained 0.9% to 4915.

For the year, the Dow is now up 2.1% and the S&P 1.4%. Only the Nasdaq remains in the red for 2016, down 1,9%.

Weighing on stocks early in the session were many of the same worries that sparked a correction earlier this year. Losses were again mounting up in the oil patch, where U.S. produced crude fell 4.3% and ended below the $37 per barrel mark.

Market turbulence abroad has also been a factor today. Stocks in Japan suffered a major downdraft overnight, tumbling nearly 4% as investors got a case of the jitters after a survey indicating a dip in confidence among Japanese businesses.

A strengthening dollar, which hurts U.S. multinationals and depresses commodities, is also fanning the bearish flames today.

Add on Wall Street trying to figure out what another strong jobs report might mean for Fed monetary policy, and you end up with a confluence of negatives that have given investors reason to sell.

But the strong manufacturing report, coupled with good news on jobs, helped offset the negatives.

Wall Street digested the release of the March jobs report, which came in solid and a tad better than expected. The government reported that the U.S. economy created 215,000 new jobs last month, slightly topping expectations. The unemployment rate ticked up to 5%, vs. an estimate of 4.9%. Other plusses in the report: average hourly earnings for workers rose 0.3% and the labor participation rate ticked up to 63%.

The continued strength in the job market suggests the U.S. economy continues to chug along, further reducing fears of a recession.

Jim Paulsen, chief investment strategist at Wells Capital Management, sums up the confusing cross-currents best.

"The jobs report was 'good,' but not so good that it immediately raises fears that the Fed is behind the curve (and will have to change course and hike rates sooner or more aggressively than thought)," Paulsen says. "The bottom line: this report will calm recession fears and is positive for risk assets."

But Paulsen does add in a disclaimer of sorts, and offers other reasons which might explain the market's wobbly start to Friday's session.

"However, the probability of Fed tightening has risen again since this report ..., so worries about the Fed and rate increases are also climbing a bit since the report. I think the stock market is reacting thus far to a bad Tanken surveys (on business sentiment) in Japan (where the Nikkei fell 3% overnight) and to the big drop in the price of oil. These two things are more than offsetting a jobs report, which is kind of neutral, as it shows solid economic growth (that will) probably lead to faster Fed tightening."

Paulsen correctly predicted stocks would turn higher as Friday moves on as fears of recession fade further from view.

In the just-completed first quarter, the S&P 500 rose 0.8%, the Nasdaq fell 2.7% and the small-company Russell 2000 was off 1.9%. Both the Dow and S&P 500 are less than 3.0% off their record highs from May 2015.

Epic collapse and recovery: Stocks' 1st quarter

The start to the quarter was gloomy in foreign stock markets as well. Shares were trading sharply lower in Europe, where the broad Stoxx Europe 600 index was down 1.6%. In France, the CAC 40 was off 1.6% and in Germany, the DAX was off 1.6%.