US stocks fell on Friday after stronger-than-expected jobs data prompted investors to recalibrate expectations around when the Federal Reserve will pause its rate-hiking campaign.
The Labor Department’s monthly jobs report for November showed payrolls grew by 263,000, higher than estimated, while unemployment was held at 3.7%. Bloomberg expected a print run of 200,000 for the month.
The S&P 500 (^GSPC) declined 0.5%, while the Dow Jones Industrial Average (^DJI) shed 0.2%, or nearly 70 points. Technology-heavy Nasdaq Composite (^IXIC) slipped 0.7%. All three session highs were cut to session highs of more than 1% immediately after the release. In other areas of the market, US Treasury yields rose after the release. The benchmark 10-year Treasury note approached 3.6%, and the rate-sensitive 2-year yield rose past 4.3%.
“Another strong jobs report and strong wage growth confirm that the Fed’s work is far from over,” Lazard Asset Management Head of US Equity Ron Temple said in a note. “Investors need to reassess their optimism about the end of policy tightening — both . terminal rate levels, and how long the Fed will keep rates there.”
Friday’s moves in early trading come after an upbeat week for equity markets, with sentiment lifted by Federal Reserve Chairman Jerome Powell’s indication of a moderation in the pace of interest rate hikes, and China relaxing some COVID-19 lockdowns after unrest over virus control. restrictions.
But the jobs report appeared to throw a wrench in the market’s plan for weekly gains and a so-called Santa Claus rally, as stocks tended to jump leading up to the holidays. The higher-than-expected jobs numbers, along with continued wage growth, provided further signals that the Fed would continue its campaign to raise interest rates even as it slows the pace.
For the month, the shares started unclearly, with a mixed close through the high averages on Thursday, the first day of December. However, according to The Carson Group’s Ryan Detrickno month is more likely to see the S & P 500 end with a gain than December: The benchmark index has risen for the month 75% of the time since 1950.
Treasury Secretary Janet Yellen said at a conference earlier this week in New York that the jobs report is the most important data point — besides inflation data — that policymakers watch in determining monetary decisions as they take action to restore price stability.
“The US labor market is starting to show signs of slowing, but only at the margins,” DataTrek’s Nicholas Colas said in an email newsletter Friday, calling the jobs report an “important data point” to watch.
Central bankers are working to ease the tightening of the labor market, which has caused excessive job openings, which has put upward pressure on wages and contributed to rising prices. But many worried that the labor market momentum that has prompted officials to press for aggressive rate hikes will cause them to overshoot and tip the U.S. economy into a recession.
In his economic outlook for 2023 earlier this year, Bank of America’s Michael Gapen warned that labor market momentum could see the federal funds rate go as high as 6%, even as the bank’s forecast calls for a terminal rate of 5.00- 5.25% by May. .
While job numbers have so far reflected resilience in the US employment picture, economists expect job growth to tend to decline as the impact of higher interest rates catches up. BofA expects the unemployment rate to hit 5.5% in 2023, while Morgan Stanley expects 4.3% and Goldman Sachs predicts an increase of half a percentage point to 4.2%.
Alexandra Semenova is a reporter for Yahoo Finance. Follow him on Twitter @alexandraandnyc
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