Shares turned mixed and Treasury yields continued to rise on Friday, with much of Wall Street seeing the Federal Reserve set to hike interest rates as early as March despite a mixed report in the jobs market American.
The S&P 500 was 0.2% lower in afternoon trading, and the 10-year Treasury yield was at its highest level since COVID-19 started hitting markets in early 2020. The benchmark index fell 0.7% earlier in the day, following the US Department of Labor mixed reading, which is generally the most anticipated economic data each month.
Employers added only about half the number of jobs last month that economists expected, which looks negative for the economy. But average wages have risen more than expected for workers. Overall, many investors saw this as proof that the job market is strong enough for the Federal Reserve to continue pushing for interest rates to rise faster from their all-time low. But, there is still a lot of debate about when and how aggressive these moves will be, which will cause markets to sloshing around.
“We’re just in great uncertainty as to what the Fed is going to do,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.
Higher rates could help stem the high inflation sweeping the world, but they would also end the conditions that have put financial markets in “easy mode” for many investors since early 2020.
Immediately after the report was released, Treasury yields continued to rise sharply this week as expectations rose for the Fed to raise rates faster. The 10-year Treasury yield hit 1.76%, from 1.73% Thursday night. It hit its highest level since January 2020, according to Tradeweb.
Investors are now banking on a greater than 79% chance that the Fed will hike short-term rates in March. A month ago, they saw a less than 39% chance of this happening, according to CME Group.
“The shortfall (on job additions) was not large enough to change any of the Fed’s plans for the tightening cycle,” said Cliff Hodge, chief investment officer for Cornerstone Wealth.
Brian Jacobsen, senior investment strategist at Allspring Global Investments, said hourly wages for leisure and hospitality workers rose 14% from the previous year. This is a big step forward for a group that represents about one in eight workers in the private sector.
“This is a solid report,” Jacobsen said, “and probably confirms for the Fed” that it should stay focused more on raising rates than continuing to pump massive amounts of aid into the economy.
Record rates have been one of the main reasons for the stock market’s race to record highs since the start of the pandemic. When bonds earn little interest, people are willing to pay higher prices for stocks and other investments.
This is why any potential rate hike increases nervousness, although the Fed has clearly telegraphed that it could hike rates three times in 2022. It has already slowed down the monthly bond purchases it makes to lower rates. of long-term interest, and the minutes released this week from its last meeting showed that the Fed could pull such purchases off its balance sheet faster this time around.
The Dow Jones Industrial Average rose 105 points, or 0.3%, to 36,341 at 1:57 p.m. EST after fluctuating between a gain of 146 points and a loss of 124. The Nasdaq Composite lost 0.8% and is on the right track. for its biggest weekly loss since the end of February.
The Nasdaq has more tech stocks than other indexes, and these companies tend to be more affected by rising interest rates. This is the flip side of the advantage they had during much of the pandemic, when low rates pushed investors to pay higher prices for companies able to grow no matter how strong the market was. economy. The low rates have also made investors more willing to buy companies whose expected big profits could take years to materialize.
Tesla and Nvidia both fell more than 2.7% and were among the heaviest weights in the S&P 500.
Stock markets elsewhere in the world were mixed.
The German DAX lost 0.6%, while South Korea’s Kospi rose 1.2% and Japan’s Nikkei 225 was largely unchanged.
A resurgence of coronavirus outbreaks has added to uncertainties about a resumption of tourism and other business activities in many parts of the world, including Asia. The World Health Organization says that a record 9.5 million COVID-19 cases were counted over the past week as the omicron variant of the coronavirus swept the planet, a 71% increase from the previous 7-day period that the United Nations health agency likened to a “tsunami “.
German leaders had to consider new restrictions possible and changes to the quarantine rules as the new omicron variant progressed rapidly.
Japan approved new restrictions Friday to curb a sharp rise in coronavirus cases in the three worst-affected southwestern regions of Okinawa, Yamaguchi and Hiroshima.
AP Business Writer Elaine Kurtenbach contributed.
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