A turbulent week on Wall Street ended Friday with further losses and the stock market’s fifth consecutive weekly decline.
The latest pullback came as investors balanced a strong U.S. jobs report against fears the Federal Reserve could cause a recession in its bid to halt inflation.
The S&P 500 ended with a loss of 0.6%, after coming back halfway from a bigger loss of 1.9%. About 70% of the companies in the benchmark fell. Technology stocks weighed the most on the index.
The Dow Jones Industrial Average fell 0.3%, while the Nasdaq slipped 1.4%. Both indexes also pared some of their losses earlier in the day.
Investors focused Friday on new data showing that U.S. employers are continuing to hire rapidly and workers are getting relatively large increases, albeit below inflation. The market reaction reflected investors’ worries that the high numbers would keep the Fed on track for strong and steady interest rate hikes to correct inflation, analysts said.
The S&P 500 fell 23.53 points to 4,123.34. The Dow fell 98.60 points to 32,899.37. The Nasdaq fell 173.03 points to 12,144.66.
Small businesses fell more than the overall market. The Russel 2000 slipped 31.58 points, or 1.7%, to 1,839.56.
Friday’s choppy trading followed even wilder gyrations earlier this week as all sorts of markets, from bonds to cryptocurrencies, grapple with a new market order where the Federal Reserve moves aggressively to pull supports for the economy put in place during the pandemic.
The Fed hopes to raise rates and slow the economy enough to stifle the highest inflation in four decades, but it risks stifling growth if it goes too far or too fast. The Fed raised its main short-term interest rate this week by half a percentage point, the biggest such increase since 2000. It also said more increases of this size were likely on the way. .
Higher interest rates not only drag down the economy by making it more expensive to borrow, they also put downward pressure on the prices of all kinds of investments. Beyond interest rates and inflation, the war in Ukraine and the ongoing COVID-19 pandemic are also weighing on markets.
Stocks nevertheless soared on Wednesday afternoon, after clinging to a glimmer of hope from comments by Federal Reserve Chairman Jerome Powell following the latest rate hike. He said the Fed was “not actively considering” an even bigger jump of 0.75 percentage points at its next meeting, which markets had taken as a virtual certainty.
Jubilation was the immediate market reaction, with the S&P 500 climbing 3% on its best day in nearly two years. It calmed down the next day, however, amid acknowledgment that the Fed is still willing to hike rates aggressively in its fight against inflation. The S&P 500 lost all of its gains from the day before, plus some more, on Thursday in one of its worst days since the early 2020 plunge caused by the coronavirus pandemic.
That may be why stocks faltered on Friday after data showed hiring is still strong and pressure remains high on companies to raise workers’ wages.
“These data do not change the Fed’s policy outlook; the trajectory of rates remains to the upside in the near term,” wrote Rubeela Farooqi, chief U.S. economist at High Frequency Economics, in a note.
Many of the factors pushing inflation higher could persist well into 2022, said Sameer Samana, senior global markets strategist at Wells Fargo Investment Institute. The latest market swings could mean investors are getting closer to better adjusting to the Fed’s aggressive policy shift, Samana said.
“Powell’s lecture didn’t change anything; there is still a lot of inflation,” he said. “You’re probably getting to the point where the Fed at least won’t be as much of a market mover anymore.”
Treasury yields also fell sharply after the release of the jobs report.
The two-year Treasury yield, which moves with Fed policy expectations, initially hit 2.77% earlier in the morning. But it then slipped to 2.70%, from 2.71% on Thursday evening.
The 10-year Treasury yield jumped to 3.13% shortly after the data was released, slipped slightly and then climbed back up to 3.14% by late afternoon. That’s still close to its highest level since 2018 and more than double where it started in 2022, at just 1.51%.
The swings came as economists pointed to some possible signs of a spike in the labor market, which could be an early signal that inflation may be moderating. That could ultimately mean less pressure on the Federal Reserve to raise rates with as much force.
While workers’ wages were 5.5% higher in April than a year earlier, in line with economists’ expectations, average hourly wage growth from March levels was slightly lower than expected. The slowdown in wage gains is disheartening for workers, but investors see less upward pressure on inflation.
BlackRock’s chief investment officer for global fixed income, Rick Rieder, pointed to surveys showing companies’ ability to hire is getting easier and other signs that some slack may be building in the labor market. in full swing.
“This raises the question of whether the Fed could slow down its tightening process at some point over the next few months due to these expected trends, but while this is possible, recent data will not provide markets with much comfort. as to what will happen anytime soon,” Rieder said in a report.
So far, expectations of higher interest rates have hit high growth stocks particularly hard.
This is largely due to the fact that many of them are considered the most expensive years after dominating the market. Many tech-focused stocks have been among the market’s biggest losers this year, including Netflix, Nvidia and Facebook’s parent company Meta Platforms.
Nearly half of Nasdaq stocks are recently down at least 50% from their 52-week highs, according to a BofA Global Research report from chief investment strategist Michael Hartnett.
AP Business Writers Joe McDonald and Damian J. Troise contributed. Veiga reported from Los Angeles.