Stocks mixed, yields soar as jobs data boosts rate outlook
Wall Street ended a rather bullish week for stocks on Friday with a mixed end to major indexes and a surge in Treasury yields after a U.S. jobs report raised investor expectations that the Federal Reserve could soon start raising interest rates sharply.
The S&P 500 settled for a 0.5% gain after swinging between a 0.6% decline and a 1.4% gain. The Dow Jones Industrial Average slipped 0.1% after a last-minute selloff. The Nasdaq composite rose 1.6%. All three indexes posted a weekly gain for the second week in a row.
The latest monthly jobs data was the focus of investors’ concerns. The Labor Department said employers added 467,000 jobs last month, tripling economists’ forecasts. Some economists even expected a loss of jobs amid the spike in coronavirus infections in January due to the omicron variant.
The stronger-than-expected data appears to lock in the Fed’s pivot to fighting inflation by raising rates and taking other actions that would ultimately dampen markets. A 13.5% gain for online retail giant Amazon after the company released a strong earnings report helped lift the S&P 500, although more shares fell than rose in the benchmark index.
“Until you get a clearer picture of what the Fed tightening will be like, you should expect volatility to be similar to what we’ve seen for the past two weeks,” said Matt Stucky, senior portfolio manager at Northwestern Mutual. Richness.
The S&P 500 rose 23.09 points to 4,500.53, while the Dow slipped 21.42 points to 35,089.74. The Nasdaq gained 219.19 points to 14,098.01, while smaller shares of the Russell 2000 rose 11.33 points, or 0.6%, to 2,002.36.
Treasury yields jumped immediately after the release of the jobs report on expectations that the Fed will raise short-term interest rates more aggressively than expected. The two-year yield, which tends to move with expectations for Fed stocks, jumped to its highest level since the start of the pandemic and is more than double what it was two months ago. .
Most people expect the Fed to raise short-term rates next month from their all-time low of near zero, with the only question being how much. Friday’s jobs report now gives investors a nearly 32.7% chance of a 0.50 percentage point increase, instead of the traditional 0.25 points. That’s more than double the likelihood Wall Street predicted a day earlier, according to CME Group.
Any increase would mark a sharp turnaround from much of the past two years, when ultra-low rates drove up prices for everything from stocks to cryptocurrencies. Bonds paying more interest would mean that investors feel less need to chase such risky returns.
That’s why Wall Street has been so shaky over the past month as investors rush to take action to get ahead of the Fed. On the one hand, higher rates will likely mean that equity investors pay lower prices for every dollar of profit a company produces. On the other hand, stock prices could still remain resilient if these corporate earnings continue to rise.
Stocks considered the most expensive have been hardest hit by the Wall Street reorganization. Much of the focus has been on tech and internet stocks that have soared during the pandemic on expectations that they can continue to grow regardless of the economy.
Even there, uncertainty still reigns as some tech-focused companies reported earnings that continued to beat analysts’ expectations, while others, like Facebook’s parent company, stumbled.
Amazon joined the list of early adopters after announcing stronger results for its latest quarter than analysts expected. Because it’s one of the biggest stocks on Wall Street by market value, its movements have an outsized effect on the S&P 500 and other indexes.
Snapchat’s parent Snap soared 58.8% and Pinterest gained 11.2% following its own revenue reports.
Facebook’s parent company fell another 0.3% a day after wiping more than $230 billion from its market value, by far the biggest one-day loss in history for a US company.
Ford fell 9.7% and was another of the heaviest weights in the S&P 500 after reporting weaker-than-expected revenue and earnings for the last quarter.
Shortages of computer chips continue to hurt its auto production. These supply chain issues have been at the heart of the high inflation that is tearing the world apart, and price increases at the US consumer level are at an all-time high in nearly 40 years.
This increases the pressure on the Fed to act decisively to bring inflation under control. Wage data in Friday’s jobs report may have ratcheted up the pressure.
The average hourly wage of workers jumped 5.7% in January from a year earlier. This is a faster acceleration from December’s 4.9% rise than economists had expected. While such increases are attractive to workers, higher wages can also fuel longer-lasting inflation than if gasoline or other commodity prices were to rise alone.
With rising expectations for Fed action, the two-year Treasury yield jumped to 1.31% from 1.19% on Thursday night. The 10-year yield jumped to 1.92% from 1.82%.
AP Business Writer Elaine Kurtenbach contributed. Veiga reported from Los Angeles.