Wall Street stock markets fluctuated between gains and losses, following days of turbulent trading, after a strong US jobs report underscored expectations for the first US interest rate rise of the pandemic era.
The blue-chip S&P 500 share index inched 0.1 per cent lower in Friday morning New York dealings. The technology-focused Nasdaq Composite fell 0.3 per cent, after edging higher in earlier trades.
The moves came after both indices whipsawed in the previous session as traders assessed signals from the Federal Reserve that it may rapidly withdraw stimulus measures that propped up the economy during the height of the pandemic.
Last year’s double-digit gains for global stocks had been fuelled by the Fed and other central banks pushing borrowing costs to record lows as they bought huge quantities of government bonds to shield financial markets from the economic shocks of coronavirus.
“Markets are ripe for a correction, or greater, at this point,” said Phillip Toews, chief executive of US asset manager Toews Corporation. “The combination of rising interest rates and inflated asset prices doesn’t usually end well.”
The US unemployment rate dipped from 4.2 per cent in November to 3.9 per cent in December, according to data released on Friday by the labour department. This was stronger than the 4.1 per cent reading that was forecast by Wall Street economists.
In another sign of the vigour of the jobs market, average hourly earnings jumped 4.7 per cent on a year-on-year basis, from an upwardly revised 5.1 per cent the previous month. The rise in employment, at 199,000, widely missed expectations of roughly 400,000.
“Away from the headline payroll number this is a very strong employment report,” said Jack McIntyre, fixed income portfolio manager at Brandywine Global.
“Clearly this is going to shift more dovish Fed officials towards the idea they have to raise rates,” he added. “But the market had been positioned for a strong report already.”
US Treasuries, which have been falling in price this year, declined further in early New York trading on Friday, pushing yields higher. The 10-year yield rose to 1.762 per cent, leaving it up 0.03 percentage points on the day and approaching its highest level since March 2021.
Earlier this week, minutes from the Fed’s latest meeting revealed officials were considering a faster timetable for interest rate rises than investors had anticipated, to combat elevated US inflation.
“The labour market is very tight, said Tatjana Greil Castro, co-head of public markets at credit investor Muzinich. “Then you potentially have wage pressures, which means higher inflation, so markets then anticipate the Fed tightening financial conditions.”
US consumer prices increased 6.8 per cent in the year to last November as a rebound in consumer demand from 2020’s pandemic-related lows coincided with supply-chain constraints.
The Fed minutes showed some of its officials suggested the US central bank could raise rates even before its goal of maximum employment had been reached, in a move that has put pressure on technology stocks.
The tech sector has been lifted in recent years by low interest rates, which provide a boost to the present value of companies’ expected future profits in an effect that is magnified for early stage businesses. The S&P information technology sub-index has fallen by about 4 per cent this week.
In Europe, the regional Stoxx 600 share index fell 0.5 per cent. Germany’s 10-year Bund yield rose 0.02 percentage points to about minus 0.05 per cent and Italy’s equivalent bond yield rose about 0.02 percentage points to 1.29 per cent. The dollar index, which measures the US currency against six others, dropped 0.4 per cent.
Wall Street stocks fluctuate after strong US jobs report
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