For the week, the Dow rallied 1.65 percent, the S&P 500 jumped 2.23 percent, and the Nasdaq soared 2.26 percent. The S&P 500 and Nasdaq posted their best week in three months. All 10 S&P sectors finished in the black for the week, with financials and materials advancing more than 3 percent.

Non-farm payrolls gained only 96,000 in August , missing expectations for an increase of 125,000, according to the Labor Department. The unemployment rate declined to 8.1 percent from 8.3 percent, but the drop was largely attributed to people giving up looking for work.

The dismal report helps set the stage for Fed policymakers to provide additional stimulus to boost the struggling economy when they meet next week. The latest figures were also a blow to President Obama as he seeks re-election in November. (Read More: Which President Has Been the Best for Markets? )