Wall Street keeps tumbling on fears about rates, economy
NEW YORK — Stocks are falling on Friday as Wall Street weighs how to interpret a strong U.S. jobs report amid worries the Federal Reserve may cause a recession in its drive to halt inflation.
The S&P 500 was 1% lower in afternoon trading after data showed U.S. employers continue to hire rapidly, and workers are getting relatively big raises, though short of inflation. Analysts said that investors were concerned that strong numbers would mean the Fed will continue to increase interest rates to curb inflation. In afternoon trading, the selling momentum increased. Earlier, the market briefly trimmed its losses and the S&P 500 flipped to a modest gain after an early burst for Treasury yields cooled and as economists pointed to some mixed signals on where inflation’s heading.
The Dow Jones Industrial Average was down 288 points, or 0.9%, at 32,715, as of 2: 13 p.m. Eastern time, after flipping between a loss of 523 points and a gain of 57. After briefly erasing a 2.7% early drop, the Nasdaq composite fell 1.6%.
The swings were even more wild this week as all markets, from bonds and cryptocurrencies, struggled with a new market order in which the Federal Reserve aggressively moves to yank support for the economy that was put in place during the pandemic. The Fed hopes to raise rates and slow down the economy enough to stop the highest inflation in forty years. However, it could impede growth if it does so too fast or too often. The Fed raised its key short-term interest rate this week by a half a percentage point, the largest such increase since 2000. It also indicated that more increases of this magnitude are possible. Higher interest rates not only put a halt to the economy’s growth by making it more costly to borrow money, but they also cause a downward pressure on all types of investments. Beyond interest rates and inflation, the war in Ukraine and the continuing COVID-19 pandemic are also weighing on markets.
Stocks rose Wednesday afternoon after grabbing a sliver from Federal Reserve Chair Jerome Powell’s comments about the latest rate hike. He stated that the Fed was not “actively contemplating” an even larger jump of 0. 75 percentage points at its next meeting, something markets had earlier seen as a near certainty.
Jubilance was the market’s instant reaction, with the S&P 500 soaring 3% for its best day in nearly two years. Despite the fact that the Fed continues to raise rates aggressively in the fight against inflation, it recovered and began to recover the next day. The S&P 500 on Thursday lost all its prior day’s gains, plus a bit more, in one of its worst days since the early 2020 crash caused by the coronavirus pandemic. This may explain why stocks fell early Friday after data showed that hiring is strong and companies are under pressure to increase workers’ pay.
“These data don’t change the outlook for Fed Policy; the rates trajectory remains upwards in the near term,” Rubela Farooqi (chief U.S. economist, High Frequency Economics) wrote in a note.
Many of the factors driving inflation higher could linger well into 2022, said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute. Samana stated that investors may be closer to adjusting for Fed’s aggressive policy shift by the latest market swings.
“Powell’s conference didn’t change anything; there’s still plenty of inflation,” he said. “You’re probably getting to point where the Fed at least won’t be as much of a market driver.”
Treasury yields also swung sharply following the release of the jobs report.
The yield on the two year Treasury, which is in line with expectations for Fed policies, shot up to 2. 77% earlier in the morning. It then dropped to 2. 67%, down from 2. 71% late Thursday.
The yield on the 10-year Treasury leaped toward 3. 13% shortly after the data’s release, before moderating to 3.12%. That’s still close to its highest level since 2018 and more than double where it started 2022, at just 1.51%. The swings were caused by economists pointing to possible signs of peaking in the jobs market, which could be an early sign that inflation is on the horizon. This could mean that the Federal Reserve will not be as pressured to raise rates as forcefully.
While workers’ wages were 5.5% more than they were a year ago, in line economists’ expectations, the average hourly wage growth from March levels was slightly lower than forecasts. Workers are discouraged by slower wage gains, but investors see them as a sign of less inflation pressure.
BlackRock’s chief investment officer of global fixed income, Rick Rieder, pointed to surveys showing companies’ ability to hire becoming easier and other signs that some slack may be building in the red-hot job market. This raises the question whether the Fed will slow down its tightening process in the coming months due to these expected trends. However, it is possible that recent data won’t give markets much comfort that this will happen anytime soon,” Rieder stated in a report.
High-growth stocks have been feeling the effects of rising interest rates for some time.
Many of these stocks are considered the most expensive after years of leading the market. Nvidia, Netflix, and Meta Platforms, Facebook’s parent company, have all been among the biggest losers in this year’s market.
Nearly half the Nasdaq stocks were recently down by 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.
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