Robust Job Report Drags Down Stocks
Friday’s surprisingly robust job report landed with a thud on Wall Street, where stocks slumped and bond yields soared on fears that the Federal Reserve would keep raising interest rates longer than expected.
The Dow Jones industrial average suffered its biggest one-day loss in more than a month, falling 96 points to erase most of the week’s gains.
The yield on the 10-year Treasury note -- a benchmark for mortgage rates -- zoomed to a four-year high of 4.98% as traders sized up the payroll data. And the yield on the 30-year bond surged above 5%.
Investors were jolted by the government’s report early in the day that U.S. employers added 211,000 jobs last month. That was down from a revised 225,000 new jobs in February but well above the 190,000 economists were expecting for March, according to a survey by website Briefing.com.
The robust growth, coupled with an unemployment rate that sank unexpectedly to 4.7%, fanned inflation fears and made it look less likely that the Fed would halt its rate-hiking campaign after its next meeting May 10, as some analysts had predicted.
“It takes days like this to really wake up the equity market to the fact that this is for real -- interest rates are going higher,” said Sandy Rufenacht, chief investment officer at Three Peaks Capital Management in Greenwood Village, Colo.
In a strong economy, the Fed will have to boost rates at least twice more “before even thinking about pausing,” Rufenacht said.
The Fed’s key short-term interest rate stands at 4.75% after 15 hikes starting in June 2004.
Although the March jobless rate matched a multiyear low reached in January, some analysts noted that hourly wages rose only 0.2% in March -- down from a 0.3% increase in February -- and said the inflation concerns were overblown.
“On closer inspection, the March employment report did not possess as much vigor as suggested by the accompanying jump in bond yields,” said John Lonski, chief economist at Moody’s Investors Service in New York.
Lonski said the payroll growth last month “deserves an asterisk” because it was offset by downward revisions for the previous two months. “We don’t yet have the decisive evidence of an inflationary tightening in the labor market,” he said.
In stock trading, the indexes rose initially, then retreated broadly as traders chewed over the economic data. The Dow lost 96.46 points, or 0.9%, to 11,120.04; the Standard & Poor’s 500 index slid 13.54 points, or 1%, to 1,295.50; and the technology-heavy Nasdaq composite index dropped 22.15 points, or 0.9%, to 2,339.02.
Losers outnumbered winners by 4 to 1 on the New York Stock Exchange and by 2 to 1 on Nasdaq.
The major indexes finished the week mixed after reaching or nearing multiyear highs: The Dow and the S&P; 500 rose 0.1% and the Nasdaq was flat.
The S&P; 500 and the Nasdaq composite hit five-year peaks Wednesday and Thursday, respectively. The Dow had reached a five-year high March 22.
Among other indexes, the New York composite and the Russell 2,000, a barometer for smaller stocks, continued retreating Friday from the all-time highs they set Wednesday.
The 4.98% yield on the 10-year T-note was up from Thursday’s close of 4.90% and its highest level since May 2002. The 30-year bond closed at 5.05%, up from 4.97% on Thursday.
First-quarter earnings, which U.S. companies will begin releasing in earnest next week, are sure to influence the market’s direction in the coming days, strategists said.
In Friday’s other trading, near-term crude oil futures fell 55 cents to $67.39 a barrel on the New York Mercantile Exchange. Traders locked in profits after crude briefly topped $68 on Thursday for the first time in two months, analysts said.
Among oil stocks, Chevron lost 76 cents to $58.65 and Schlumberger fell $3.55 to $129.05.
In other equity highlights:
* Twenty-seven of the Dow’s 30 blue-chip names fell, including Hewlett-Packard, which lost 73 cents to $33.37; IBM, which sank $1.33 to $82.48; insurer AIG, which slipped $1.06 to $64.38; and drug maker Pfizer, which eased 40 cents to $24.69.
* BlackBerry maker Research in Motion slid $4.60 to $79.78 after issuing a disappointing profit forecast.
* Starbucks rose 41 cents to $37.86 on strong March sales.
