Wall Street’s rise hit a wall on Friday, after a report from surprisingly strong employment raise concerns about the inflation and the rise of the interest rates.
Shortly before the close, the S&P 500 was down 1% for its first drop in four days. The Dow Jones Industrial Average was down 0.4 percent, while the Nasdaq Composite was down 1.5 percent.
The fixed income market was more determined in thinking that the Strong jobs data could push the Fed to get tougher on raising interest rateswhich hurt the economy and markets.
Prior to the release of the jobs report, it looked as if the market was going to weaken. Late on Thursday, several large technology companies, among the most influential on Wall Street, registered in the last quarter about lower earnings than forecast by analysts.
That raised concerns about a rally that had sent the S&P 500 back to its highest level since Augustdriven by the hope that the inflation cooling get the Fed to pause raising interest rates early and possibly even cut rates later this year.
Then came the jobs report, which showed that employers created 517,000 positions net work last month. A number much higher than 185,000 expected by economists and a strong acceleration with respect to the 226,000 December jobs.
Normally, a stronger jobs report is good for Wall Street because it means the economy is on a firmer foundation. But in this upside-down post-COVID world, it could be a worrying sign. The Federal Reserve is trying to cool the labor market in the hope of reducing inflationary pressure.
The concern in the market is that the contracting, much stronger than expected, could keep the Federal Reserve on the path of interest rates “higher for longer” you’ve been talking about, even though the markets haven’t quite bought it.
“It is going to be more difficult to argue that rate cuts may be in the future from 2023 if the labor market is able to continue like thisespecially given that it remains to be seen how fast inflation will fall, even if we have peaked,” said Mike Loewengart, head of model portfolio construction at the Morgan Stanley Global Investment Office.
Treasury yields rose immediately after the jobs report ahead of forecasts of a firmer Federal Reserve. The two-year Treasury yield, which usually tracks the Federal Reserve’s expectations, rose to 4.30% from 4.10% on Thursday. The 10-year yield, which helps set rates on mortgages and other major loans, rose to 3.53% from 3.40%.
The stock market reaction was more hesitant. Stocks opened with heavy losses, wiped them all out, and fell again later.
Some analysts said they were paying more attention to the wage data in the jobs report than to hiring in general, which wasn’t all that surprising.
Average hourly earnings of workers they increased by 4.4% in January compared to the previous year. This is a slowdown from the 4.8% increase in December, although it was slightly above expectations. The slowdown in wage increases may mean a lower pressure on inflation, though it hurts workers trying to keep up with rising prices at the cash register.
“The Federal Reserve has downplayed the unemployment rate and payrolls, focusing more on wage increases”said Brian Jacobsen, investment strategist at Allspring Global Investments. “Wage gains were in line with consensus expectations, so I’m not as concerned as most about the path ahead for the Fed.”
Also clouding the picture was a report showing that the US service sector returned to growth in January. It was a much stronger reading than expected, although it also suggested that price pressures may be easing.
The falls of some values of large technology companies they weighed down the market after weaker than expected earnings reports.
Amazon fell 8.7% and was one of the biggest drags on the S&P 500, while the parent Google it yielded 3.1%. As among the most valuable stocks on Wall Street, its moves carry more weight in the S&P 500 than others.
On the winning side stood Cloroxwhich shot up 8.7% after posting much stronger-than-expected end-2022 earnings.
Even with Friday’s stagnation, the S&P 500 is headed for its fourth winning week in the last five. It is also on track to post its first consecutive weekly gains of at least 1.5% since October.
(With information from AP)
To curb inflation, the Federal Reserve increased the interest rate: it rose 0.25 points
The biggest strike in a decade paralyzes transport and schools in the UK
The Committee investigating the assault on the US Capitol concluded that the FBI could have prevented the attack