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Markets fall as jobs data suggests further rate hikes

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NEW YORK — Stock indexes closed mostly lower on Friday after a rollercoaster day following a hit U.S. jobs report that offered good and bad news for Wall Street.

The benchmark S&P 500 ended down just 0.2% after recovering from an early tumble as investors reacted to the report, which showed U.S. employers unexpectedly added hundreds of thousands more jobs than forecast last month.

The searing data suggests the economy may not be in a recession as feared. But it also undermines investor speculation that a slowing economy could soon mean a spike in inflation. This means that the Federal Reserve may not abandon its aggressive rate hikes to fight inflation as soon as expected. And much of Wall Street still revolves around rate expectations.

“It reminds investors of how uncertain Fed policy is and the strong job market data shows how far the Fed needs to go,” said Charlie Ripley, chief investment strategist at Allianz Investment Management.

Tech stocks and other high-growth companies once again took the brunt of the sell-off amid concerns over rising rates. The tech-heavy Nasdaq composite pared early losses and closed down 63.03 points, or 0.5%, at 12,657.55.

Good news in the labor market helped limit losses for the Dow Jones Industrial Average, whose stocks tend to move more along with expectations for the overall economy. It added 76.65 points, or 0.2%, to close at 32,803.47.

The S&P 500 slipped 6.75 points to end at 4,145.19. The S&P 500 and Nasdaq both posted gains for the week.

Beyond the country’s strong hiring, worker wage growth also accelerated unexpectedly last month. This is useful for households trying to track the fastest price gains in 40 years. But it also raises fears on Wall Street that inflation is becoming more entrenched in the economy.

Higher wages can cause companies to 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 to numbers from Friday’s jobs report suggesting the jobs market might not be as strong as the headline numbers imply. The number of people with multiple jobs has increased by more than half a million, for example, said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

“It was mostly from people who already had a full-time job, and then the second job was part-time,” he said. “Perhaps it’s more superficially impressive than substantially impressive.”

The clearest moves on Wall Street came from the bond market, where Treasury yields climbed immediately after the release of the jobs data. The two-year Treasury yield, which tends to track expectations for Fed action, jumped to 3.23% from 3.05% Thursday night. The 10-year yield, which influences mortgage rates, rose from 2.69% to 2.84%.

Wall Street just had the best month for stocks since the end of 2020, a rally fueled mainly by falling yields in the bond market. The hope on Wall Street was that the economy slowed enough to prompt the Fed to ease its rate hikes.

Rising mortgage rates have impacted the housing sector, in particular, after the Fed raised short-term rates four times this year. The last two increases were triple the usual size, and the Fed raised its overnight rate from near zero by 2.25 percentage points.

“Today’s much stronger than expected release complicates the job” of the Federal Reserve, Rick Rieder, BlackRock’s chief investment officer for global fixed income, said in a statement. He said the assumption now becomes the Fed raising short-term rates an additional 0.75 percentage points next month unless next week’s highly anticipated inflation report “shows dramatic weakness, which seems highly unlikely at this stage.”

Traders rushed to bet on bigger bulls after the Fed’s next meeting. They reversed their expectations of a day earlier and now widely expect the Fed to hike the rate by 0.75 percentage points, instead of half a point.

Such increases hurt investment prices in the short term and increase the risk of recession in the longer term, because they slow down the economy by design.

These expectations also mean that the two-year Treasury yield remains higher than the 10-year yield. That’s unusual, and some investors see it as a sign of a recession hitting the economy in the next year or two.

On Friday, Warner Bros. Discovery fell 16.5% for the biggest loss in the S&P 500 after reporting weaker results for the last quarter than analysts expected. Monster Beverage fell 5.2% after reporting weaker-than-expected profit, although its revenue was higher than expected.

Smaller company stocks also weathered the turbulence in trading to post gains. The Russell 2000 Index rose 15.37 points, or 0.8%, to close at 1,921.82.

In overseas equity markets, India’s Sensex rose 0.2% after the Reserve Bank of India raised its benchmark interest rate by half a percentage point to 5.4%.

The Japanese Nikkei 225 rose 0.9%, while the German DAX fell 0.6%.

Photo FILE – The New York Stock Exchange on Wednesday, June 29, 2022 in New York. Stocks open lower on Wall Street on Friday, Aug. 5, after much stronger-than-expected hiring data from the Labor Department. (AP Photo/Julia Nikhinson, File)
Photo A currency trader looks at monitors in front of screens showing the Korea Composite Stock Price Index (KOSPI), left, and the exchange rate of the South Korean won to the US dollar in the foreign exchange trading room of the KEB Hana Bank headquarters in Seoul, South Korea, Friday Aug. 5, 2022. Asian stock markets rose on Friday ahead of U.S. labor market data that could influence Federal Reserve decisions on further interest rate hikes ‘interest. (AP Photo/Ahn Young-joon)
Photo Currency traders watch monitors in the foreign exchange trading room at the KEB Hana Bank headquarters in Seoul, South Korea, Friday, Aug. 5, 2022. Asian stock markets rose on Friday ahead of U.S. labor market data that could influence Federal Reserve decisions regarding further interest rate hikes. (AP Photo/Ahn Young-joon)
Photo A currency trader looks at screens showing exchange rates in the foreign exchange trading room of KEB Hana Bank’s headquarters in Seoul, South Korea, Friday, Aug. 5, 2022. Asian stock markets rose on Friday ahead of data US labor market conditions that could influence Federal Reserve decisions on further interest rate hikes. (AP Photo/Ahn Young-joon)
Photo A detail of the exterior of the New York Stock Exchange, Wednesday, August 3, 2022, in New York. Stocks open nearly flat on Wall Street on Thursday, August 4. New data from the Labor Department showed more Americans filed for unemployment benefits last week as the number of unemployed continues to rise slightly. (AP Photo/Julia Nikhinson)

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