U.S. stocks closed higher Friday after a labor market report showing moderating wage growth in May indicated the Federal Reserve may skip a rate hike in two weeks, while investors welcomed a Washington deal that avoided a catastrophic debt default.

The tech-heavy Nasdaq index surged a 13-month intraday high and posted its sixth-straight week of gains that mark its best winning streak since January 2020.

U.S. job growth accelerated in May but a surge in the unemployment rate to a seven-month high of 3.7% as more people looked for employment indicated labor market conditions were easing, the Labor Department said.

The jump in the unemployment rate from a 53-year low of 3.4% in April reflected a drop in household employment and a rise in the overall workforce. A bigger labor pool is easing pressure on businesses to raise wages and helping decelerate inflation.

"While it appears to be a hot number on the actual number of people employed, the wage rate is not increasing as fast," said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh. "That is a softening effect and is this the mythical soft landing? Looks like that."

The data brought relief to investors who mostly expect the Fed to pause hiking rates at its policy meeting on June 13-14. It would be the first halt since the Fed started its aggressive anti-inflation policy tightening more than a year ago.

But some pointed to the much hotter-than-expected jobs data as a sign the Fed still has not yet tamed inflation.

"Our view is and has been that the market is completely wrong on assessing what the Federal Reserve is doing," said Phil Orlando, chief equity strategist at Federated Hermes in New York.

"The market's perception is that this economy was going to cool, inflation was going to collapse and the Fed was going to turn around and start cutting interest rates. That's wrong."

Fed funds futures showed a 66.6% probability that the Fed will hold rates steady in two weeks, down from 79.6% on Thursday, according to CME Group's FedWatch Tool.

Markets now await data on key consumer prices a day before the Fed's rate decision.

The Senate passing a bill late on Thursday to lift the government's $31.4 trillion debt ceiling avoided what would have been a catastrophic, first-ever default.

Passage of the vote eased investor concerns as Wall Street's fear gauge, the CBOE volatility index, fell to its lowest since November 2021.

Unofficially, Shares of Verizon Communications Inc., AT&T Inc. and T-Mobile US Inc declined after a report said Amazon.com Inc was in talks with the U.S. telecoms to offer low-cost wireless services to its Prime members. Amazon shares rose.

All 11 S&P 500 sectors advanced, with the materials index leading and the consumer discretionary sector , housing Amazon, close behind.

Nvidia Corp. slid for a second day after briefly entering on Wednesday the elite club of megacap stocks valued at $1 trillion or more on hopes artificial intelligence will deliver significant future returns.

But Nvidia's almost 170% rise year to date highlights investors face by a market dominated by the outperformance of megacaps while most other companies tread water.

"Nobody’s really explained to me how they’re going to make any money from it," said Michael Landsberg,” chief investment officer at Landsberg Bennett Private Wealth Management in Punta Gorda, Florida. "A company like Nvidia going up so much in such a short period of time, that doesn't make any rational sense."