The Dow Jones Industrial Average fell on Friday after an unexpected surge in jobs last month spiked bond yields and reaffirmed to investors the Federal Reserve would continue with its plan to raise interest rates as soon as March.
The Dow fell 125 points, or 0.3%. The S&P 500 was flat, and the tech-heavy Nasdaq Composite climbed 0.7%.
For the week, the S&P and Nasdaq were up more than 1%. The Dow rose 0.8% week-to-date. If these gains hold, they’ll mark the second weekly advances of 2022 for the major averages — which were under pressure last month as worries of higher interest rates dragged down tech names.
Friday’s moves came as traders weighed a much stronger-than-expected jobs report and its potential impact on U.S. monetary policy going forward.
The 10-year Treasury yield jumped above 1.9%, its highest level since December 2019, after the January jobs report showed a 467,000 gain in payrolls. Economists polled by Dow Jones had expected a minor gain of 150,000, and some economists predicted a large decrease. Economists had cautioned before the report it could be noisy because of an omicron wave hitting while the survey was taking place.
“For markets, the jobs report is all about the Fed, and today’s upside surprises in both job creation and wage growth keep the Fed on track to begin raising rates in March and hike four or more times this year,” said Barry Gilbert, asset allocation strategist at LPL Financial.
The benchmark yield has jumped from 1.51% at the end 2021, as the Federal Reserve pivoted to more aggressively fight inflation, signaling it would slow down its bond buying and raise rates several times this year. Higher rates have weighed on stocks, especially tech shares with high valuations. The S&P 500 is down 6% this year.
To be sure, continued strength in earnings mitigated some of the losses in the Dow and S&P 500 and lifted the Nasdaq. Amazon jumped 12% on Friday, while Snap rocketed up around 47% the day after reporting earnings. Pinterest rose about 4%.
Wall Street was coming off a horrid session in which a plunge in Meta shares dragged megacap tech stocks lower. Meta shares suffered their worst day ever on Thursday, dropping 26.4% on the back of disappointing quarterly earnings.
“We’re in for a choppy period but tech has been picked on for quite some time, and now, a lot of traders are saying this is the time to be constructive, especially on some of these companies that have proven time and again that they’ve been able to manage different types of environments and are providing optimistic outlooks going forward,” Edward Moya, senior market analyst at Oanda, told CNBC.
The Nasdaq Composite, which is tilted towards tech shares, fell 3.7% on Thursday for its worst daily performance since September 2020. The S&P 500 had its worst day in nearly a year, sliding 2.4%, and the Dow fell 518.17 points.
“The sharp drop in FB market cap today and the accompanying drag on the S&P500 index is … a stark reminder of the high concentration of mega-cap Tech stocks in the S&P 500 — and the vulnerabilities that such concentration brings,” Goldman Sachs’ Chris Hussey said in a note Thursday.
The S&P 500 was slightly higher Friday as investors digested a slew of tech earnings and January jobs data.