Wall Street falls as jobs data suggests Fed rate hikes aren’t over

NEW YORK — Stock indices closed largely lower on Friday after a rollercoaster day following a blockbuster US job market report that offered both good and bad news for Wall Street.

The measure S&P500 ended just 0.2% lower after recovering from an early decline as investors reacted to the report, which found that US employers unexpectedly added hundreds of thousands more jobs than forecast last month.

The blistering data suggests the economy may not be in a recession as feared. But it also undercuts investor speculation that a slowing economy could soon mean a spike in inflation. That means the Federal Reserve shouldn’t give up its aggressive rate hikes to fight inflation as soon as hoped. And much of Wall Street still revolves around expectations for rates.

“It reminds investors how uncertain the Fed’s policy is and the strong job market data shows how far the Fed has yet to go,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.

Stocks of technology and other high-growth companies took the brunt of the sale again amid concerns about rising interest rates. The tech-heavy Nasdaq composite trimmed its early losses and closed 63.03 points, or 0.5%, at 12,657.55.

The good news in the job market helped limit losses for the Dow Jones Industrial Average, whose stocks tend to move more in line with expectations for the general economy. It added 76.65 points, or 0.2%, to close at 32,803.47.

the S&P 500 fell 6.75 points to finish at 4,145.19. Both the S&P 500 and Nasdaq posted gains for the week.

In addition to the country’s strong hiring, wage growth for workers also unexpectedly accelerated last month. That’s useful for households trying to keep up with the fastest price increases in 40 years. But it also raises concerns on Wall Street that inflation will become more embedded in the economy.

Higher wages can lead companies to raise prices for their own products to support profits, leading to what economists call a “wage-price spiral.”

To be sure, some market observers also pointed to numbers in Friday’s employment report, suggesting the job market may not be as strong as the overall numbers suggest. For example, the number of people with multiple jobs increased by more than half a million, said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

“That was mainly from people who already have a full-time job and then the second job is part-time,” he said. “Perhaps this is more superficially impressive than substantively impressive.”

Wall Street’s clearest moves came from the bond market, where government bond yields skyrocketed immediately after the release of the jobs data. Two-year Treasury yields, which tend to follow expectations for Fed action, rose to 3.23% from 3.05% at the end of Thursday. The 10-year interest rate, which influences the interest on mortgages, rose from 2.69% to 2.84%.

Wall Street is coming off the best month for equities since late 2020, a rally primarily driven by falling bond market yields. Wall Street’s hopes had been that the economy would slow down enough to prompt the Fed to ease rate hikes.

Higher mortgage rates had particularly affected the housing sector, after the Fed hiked short-term rates four times this year. The last two increases were three times the usual rate, and the Fed has raised its benchmark overnight interest rate from near zero by 2.25 percentage points.

“Today’s pressures, coming in much stronger than expected, are complicating the work of the Federal Reserve,” Rick Rieder, BlackRock’s chief investment officer for global fixed income, said in a statement. He said the assumption is now that the Fed will raise short-term interest rates by another 0.75 percentage point next month unless next week’s much-anticipated inflation report shows “dramatic weakness, which seems highly unlikely at this point.”

Traders rushed to place bets on bigger gains to come out of the Fed’s next meeting. They have reversed their expectations from a day earlier and now largely expect the Fed to increase by 0.75 percentage point instead of half a point.

Such increases are detrimental to investment prices in the short term, and they increase the risk of a downstream recession because they naturally slow the economy.

Such expectations also mean that two-year government bond yields will remain above the 10-year yield. That’s unusual, and some investors see it as a sign of a recession that will hit the economy in a year or two.

On Friday, Warner Bros. Discovery 16.5% for biggest loss in the S&P 500 after reporting weaker last quarter results than analysts had expected. Monster Beverage lost 5.2% after reporting weaker-than-expected earnings, although sales were stronger than forecast.

Shares of smaller companies also weathered the turbulent trading to make gains. The Russell 2000 index rose 15.37 points, or 0.8%, to 1,921.82 points.

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

Japan’s Nikkei 225 rose 0.9%, while Germany’s DAX fell 0.6%.

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Veiga reported from Los Angeles.