Stocks mixed, yields soar as jobs data lifts interest rate outlook

NEW YORK >> Wall Street ended a mostly positive week for equities today with a mixed close for major indices and a rise in Treasury yields after a burst of the US jobs report raised investor expectations that the Federal Reserve Reserve soon could raise interest rates sharply.

The S&P 500 settled for a 0.5% gain after fluctuating between a 0.6% decline and a 1.4% gain. The Dow Jones Industrial Average fell 0.1% after a last-minute burst of sales. The Nasdaq composite rose 1.6%. The three indices posted weekly gains for the second week in a row.

The latest monthly jobs data has been a key focus for investors. The Department of Labor said employers added 467,000 jobs last month, forecasts by triple economists. Some economists even expected job losses amid January’s wave of coronavirus infections due to the ommicron variant.

The stronger-than-expected data appears to pin the Fed’s pivot in fighting inflation by raising interest rates and taking other measures that would ultimately slow markets down. A 13.5% gain for online retail giant Amazon after the company delivered a strong earnings report helped the S&P 500 rally, even though more stocks fell than rose in the benchmark index.

“Until you get a clearer picture of the Fed tightening, expect volatility to be similar to where we’ve been in the past two weeks,” said Matt Stucky, senior portfolio manager at Northwestern Mutual. Wealth.

The S&P 500 rose 23.09 points to 4,500.53, while the Dow fell 21.42 points to 35,089.74. The Nasdaq gained 219.19 points to 14,098.01, while smaller stocks in the Russell 2000 were up 11.33 points or 0.6% to 2,002.36.

Treasury yields rose immediately after the jobs report was released, following predictions that the Fed will raise short-term interest rates more aggressively than previously expected. Two-year yields, which tend to move in line with expectations for the Fed’s actions, jumped to their highest level since the start of the pandemic and are more than double what they were two months ago.

The Fed is widely expected to raise short-term interest rates to near-zero lows next month, with the only question by how much. According to today’s jobs report, investors now estimate a near 32.7% chance of a 0.50 percentage point increase, instead of the traditional 0.25 points. That’s more than double the chance Wall Street predicted a day earlier, according to CME Group.

Any increase would mark an abrupt reversal from much of the past two years, when ultra-low rates helped prices soar on everything from stocks to cryptocurrencies. Bonds that pay more interest would mean that investors feel less of a need to reach for such risky things for returns.

That’s why Wall Street has been so shaky over the past month as investors rush to take steps to stay ahead of the Fed. On the one hand, higher rates will likely mean that stock investors will pay lower prices for every $1 of profit a company produces. On the other hand, stock prices could remain resilient despite that if those corporate earnings continue to rise.

Shares considered the most expensive took some of the hardest hits in the Wall Street realignment. Much of the focus has been on technology and internet stocks that have boomed during the pandemic with the expectation that they can continue to grow regardless of the economy.

Even there, uncertainty still reigns, as some tech-focused companies have reported gains that continue to exceed analyst expectations, while others, like its parent company Facebook, have stumbled.

Amazon joined the list of the former after reporting stronger results for the last quarter than analysts had expected. Because it is one of the largest stocks on Wall Street in terms of market value, its movements are having an inordinate effect on the S&P 500 and other indices. The company also set a record for the largest one-day gain in market value by a U.S. company, adding $191 billion to market value, according to FactSet.

Amazon’s big market value jump came a day after a historic plunge in the shares of Facebook’s parent company erased more than $230 billion in market value, marking the largest single-day loss of value for a US company. Meta fell another 0.3% today.

Facebook’s parent company fell another 0.3% per day after erasing more than $230 billion in market value, easily the largest one-day loss in history for a US company.

Snapchat parent Snap was up 58.8% and Pinterest gained 11.2% after their own earnings reports.

Ford fell 9.7% and was still one of the heaviest weights on the S&P 500 after reporting weaker-than-expected revenues and earnings in the last quarter.

Shortages of computer chips continue to hurt car production. Such supply chain problems have been at the heart of the high inflation that has emerged worldwide, and consumer-level price increases in the US are at a 40-year high.

That increases the pressure on the Fed to act decisively to curb inflation. Data on wages in today’s jobs report may have added to the pressure.

The average hourly wage of employees rose by 5.7% in January compared to a year earlier. That was a faster acceleration than the 4.9% rise in December than economists had expected. While such increases are great for workers, higher wages could also lead to long-term inflation than if prices for just gasoline or other commodities were to rise.

With expectations for action rising from the Fed, two-year Treasury yields rose to 1.31% from 1.19% at the end of Thursday, from 1.31%. The 10-year yield rose from 1.82% to 1.92%.