Technology shares were sold off again as bond yields rose on Friday, following the release of the December jobs report. Markets remain confident that the Fed will act quickly to raise interest rates.
Dow Jones Industrial Average
It was basically flat and closed only 5 points lower, after the index fell 170 points on Thursday. the
Standard & Poor’s 500
It decreased by 0.4%, while heavy technology
The US added 199,000 jobs in December, missing estimates of 422,000 and falling short of November’s result of 210,000. The unemployment rate fell to 3.9%. “The drop in the unemployment rate is the last piece of data we need to see to change our base case to a rate hike in March (instead of June),” wrote Andrew Hollenhurst, economist at Citigroup.
Any strength that markets can detect in the labor market could mean that the Fed will have to raise interest rates sooner rather than later as more people earn and spend money, contributing to higher inflation.
This strength in the labor market can be detected in Friday’s report. “Today’s non-farm payroll report requires a close look at all the numbers and not just the main error,” wrote Edward Moya, chief market analyst at Oanda.
That sent the 10-year Treasury yield, which forecasts long-term inflation, to 1.8%, before settling at 1.77%, a new pandemic-era high. The two-year Treasury yield, whose moves often attempt to predict the number of upcoming rate hikes, rose from 0.87% to 0.9% after the report was released. It closed at 0.87%.
A surge in long-term bond yields is hurting tech stocks, which have underperformed compared to the broader market recently. The Nasdaq is down about 7% from its all-time high, which the index hit in late November. Since that point, the S&P 500 has been basically flat. Many fast-growing technology companies are investing heavily now to make big profits in the distant future — and long-term bond yields reduce the value of future earnings.
The picture in technology now looks darker. At less than 15,000 points, the Nasdaq is trading below the level that was previously attracting buyers since October. Those buyers seemed less interested on Friday – which is no surprise, given the higher 10-year yield.
The Dow, home to the most economically sensitive stocks, had a good Friday. And while the Fed’s tougher policy is hurting economic growth, investors aren’t too worried just yet, with the Dow Jones down just over 1% from an all-time high.
Even before the jobs report was released, the Fed said in its December minutes published on Wednesday that it was likely to raise interest rates in June, even though markets expect the first hike in March. The Fed is also soon considering reducing the size of its balance sheet, which could mean selling bonds. This would put downward pressure on bond prices and raise interest rates.
Then came the December jobs report, which was stronger than the main result might suggest.
Job results for October and November were revised up by 141,000 jobs. And the December report is no exception. “We are reminding investors that monthly job numbers will be subject to revisions over the coming months,” Jay Pestricelli, CEO of ZEGA Financial, wrote.
This is just the address number. The household survey, which includes those who are self-employed or not formally employed, said those without jobs fell by 483,000.
The jobs report was actually a “huge win no matter how you look at it,” said Tom Graf, head of fixed income at consultancy Brown.
Also, private sector wages continued to rise. This means that households have more money to spend – and that companies have greater incentives to raise prices, which contributes to inflation.
No wonder bond yields are rising and the stock market is taking that into account.
It rose 0.5%, Hong Kong
Hang Seng Index
It rose 1.8% on optimism among investors that China will prioritize a stable economy.
Cryptocurrencies continued to lag, adding to their losses from the recession this week.
The leading digital asset, down 2.6% to below $42,000, after starting the week around $47,000. smaller counterpart
It fell 5.5%, retreating from above $3,800 on Monday.
Here are five stocks on the move on Friday:
Jim Stop (Stock ticker: GME) jumped 7.3% as the company’s plans to expand into digital assets took shape. The retailer is creating a division for cryptocurrency partnerships, while building the NFT Marketplace, Baron mentioned.
Delta Airlines (DAL) stock rose 3.5% after being upgraded to Buy from Neutral on Bank of America.
Honeywell International (HON) stock rose 2.3% after being upgraded to Buy from Neutral on UBS.
McKesson (MCK) (MCK) stock rose 2.1% after being upgraded to Outperform from Neutral at Credit Suisse.
kohl (KSS) stock fell 1.7% after it was downgraded to a sell-from-neutral rating on UBS.
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