Stocks closed mostly lower on Friday, after new data on the hot US labor market suggested that the Federal Reserve will not stop its aggressive interest rate hikes soon.
The S&P 500 fell 0.2% and the nasdaq lost 0.5%, while the dow jones of Industrialists registered a small gain.
Employers unexpectedly accelerated their hiring last month and added hundreds of thousands of jobs more than anticipated. While the data suggests the economy could not be in recessionalso undermine investors’ hopes that the inflation may be close to peaking. Treasury yields soared.
“It’s a reminder to investors how uncertain Fed policy is going forward and strong labor market data shows how far the Fed has to go,” he said. charlie ripleysenior investment strategist at Allianz Investment Management.
The shares of the companies technological and other high-growth companies again bore the brunt amid concerns about rising interest rates.
Beyond the strong contracting of the countrythe growth of wages of the workers also sped up unexpectedly last month. This is useful for households trying to keep up with the fastest price rises in the last 40 years. But there is also growing concern on Wall Street about the possibility of inflation taking hold in the economy.
Higher wages can make companies raise the prices of their own products to maintain profits, which can lead to what economists call a wage price spiral.
To be sure, some market watchers also pointed out that Friday’s employment report figures they suggest that the labor market may not be as strong as the headline figures imply. The number of people with multiple jobs increased by more than half a million, for example, he said. brian jacobsensenior investment strategist at Allspring Global Investments.
“That was mostly from people who already have a full time job and then the second job is part time.“, said. “Perhaps this is more superficially impressive than substantially impressive.”
The clearest moves on Wall Street came from the bond market, where Treasury yields soared immediately after the jobs data was released. ANDThe two-year Treasury yield, which tends to follow expectations for Fed action, jumped to 3.21% from 3.05% on Thursday. The 10-year yield rose to 2.84% from 2.69%.
Wall Street is coming off the best month for stocks since late 2020, a rally fueled mainly by what had been falling yields in the bond market. The hope on Wall Street had been that the economy was slowing enough that the Federal Reserve loosen its rate hikes.
The increase in mortgage rates had affected the housing sector, in particular, after the Federal Reserve raise its short-term rates four times this year. The last two hikes were triple the usual, and the Fed has raised its overnight benchmark rate from near zero in 2.25 percentage points.
“Today’s data, much stronger than expected, complicates work” from the Federal Reserve, Rick Rieder, BlackRock’s chief investment officer for global fixed income, said in a statement. He said the assumption now becomes that the Fed will raise short-term rates by another 0.75 percentage point next month, unless next week’s expected report on inflation “show any dramatic weakness, which seems highly unlikely at this point.”
Traders were quick to bet on biggest raises at the next Fed meeting. They have reversed their expectations from a day earlier and now largely expect the Fed to rise 0.75 percentage points, instead of half a point.
these climbs hurt short-term investment prices and they increase the risk of recession later on, as they intentionally slow down the economy.
These expectations also mean that the two-year Treasury yield remains above the 10-year yield. That’s unusual, and some investors see it as a sign that the economy will hit a recession in the next year or two.
On foreign stock markets, the Sensex of the India rose 0.2% after the Reserve Bank of India raised its benchmark interest rate by half a percentage point to 5.4%.
The Nikkei The Japanese 225 rose 0.9%, while the German DAX fell 0.6%.
(With information from AP)
The United States added 528,000 new jobs in July, more than double what was expected, and the unemployment rate fell to 3.5%