Nasdaq Composite ends 3 percentage points from correction, as investors react to Fed, Friday's jobs report – MarketWatch
U.S. stocks ended lower Friday, in a turbulent session that concluded with all three major benchmarks suffering weekly declines, following a monthly jobs report whose headline figure came in far below economists’ estimates.
In parsing the Labor Department report, investors appeared to conclude that the monthly employment update won’t derail the Federal Reserve’s intention to wind down accommodative policies and eventually hike rates to combat inflation in 2022.
On Thursday, the Dow fell 171 points, or 0.5%, to 36,236, the S&P 500 slipped 0.1% and the Nasdaq Composite eased 0.1%.
The Dow Jones Industrial Average struggled to hold on to modest gains in late afternoon trading Friday, ending the session in the red along with the other major stock benchmarks as investors assessed the latest labor-market data.
The U.S. economy added 199,000 jobs in December, the Labor Department reported on Friday, well below the forecast from economists polled by The Wall Street Journal for a 422,000 rise for the month, highlighting some impact of the spread of the omicron variant of the coronavirus on the jobs market.
While the headline number of the jobs report was worse than expected, the economy still looked “hot” when considering details such as the drop in the unemployment rate and increase in average hourly earnings, according to Bob Doll, chief investment officer of Crossmark Global Investments.
Read: The U.S. jobs report is not as weak as looks for the second month in a row. Here’s why
The U.S. unemployment rate fell to 3.9% from 4.2%, while average hourly earnings jumped 19 cents, or 0.6%, to $31.31, the jobs report showed, proving a bright spot for some.
“We have a strong economy and we have an inflation problem and the Fed’s behind the curve,” Doll said by phone Friday. The jobs report gives the Federal Reserve “more leeway to get on with it,” he said, pointing to market expectations for the Fed to begin hiking its benchmark interest rate this year.
Market participants may be viewing Friday’s job report as lackluster but also not damaging enough to give central bankers reason to pause what has been expressed as a plan to tighten financial policy sooner and faster than had previously been expected.
“U.S. employers are having to pay up to get people back into the workforce and this is something that the Fed will consider when they look at the timeline for when to make their first move,” wrote Michael Hewson, chief market analyst at CMC Markets U.K., in a daily report.
Omicron poses “challenges” for labor-force participation that aren’t fully captured in Friday’s jobs report as the spread of the variant picked up after the employment data was collected for it, cautioned Luke Tilley, chief economist at Wilmington Trust, in a phone interview Friday. “It is a very tight labor market,” he said, citing the struggles of businesses to hire workers in the pandemic.
The jobs report also comes during a week in which the yield on the 10-year Treasury TMUBMUSD10Y, 1.762% surged to around 1.8% — pressuring growth stocks and bolstering financials. The continued climb for government debt was helping to contribute to pressure on the yield-sensitive tech sector, weighing notably on the tech-heavy Nasdaq Composite. Similarly, the large-capitalization Nasdaq-100 index NDX, -2.75% dropped 4.5% in its sharpest weekly slump since February of last year.
Read: Value stocks have pulled ahead of growth in recent weeks. Is it a head-fake?
Financial shares SP500.40, -2.02% rose Friday to bring their weekly gain to 5.4% but energy SP500.10, -1.95% was the real winner, surging 10.6% for the week as investors bet on a better performance for cyclicals in 2022 as rates rise.
Those moves came as San Francisco Fed President Mary Daly on Friday said that she endorses a gradual rate increase at the same time as an unwind of the central bank’s roughly $9 trillion balance sheet, which she says should come sooner than the last normalization cycle.
“I would prefer to see us adjust the policy rate gradually and move into balance sheet reduction earlier than we did in the last cycle,” Daly said at the annual meeting of the American Economic Association.
—Steve Goldstein contributed to this report.
Tech stocks are sensitive to bond yields, and the yield on the benchmark 10-year U.S. Treasury note is at its highest level in two years.
Christine Idzelis is a markets reporter at MarketWatch and is based in New York.
Mark DeCambre is MarketWatch’s markets editor. He is based in New York. Follow him on Twitter @mdecambre.
