U.S. stock indexes fell Friday after President Trump said he may intensify his trade war with China. And a strong jobs report pushed investors to brace for higher interest rates.
The Standard & Poor’s 500 index bounced between modest gains and losses in an up-and-down day, but its most decisive move was downward after Trump said he was ready to impose tariffs on essentially every good that’s imported from China. That helped push the S&P 500 to its fourth straight loss.
The S&P 500 ended down 6.37 points, or 0.2%, at 2,871.68, closing out its second down week in the last 10. The Dow Jones industrial average fell 79.33 points, or 0.3%, to 25,916.54. The Nasdaq composite fell 20.18 points, or 0.3%, to 7,902.54.
Earlier in the day, the government’s monthly jobs report showed that hiring and workers’ wage gains were healthier than expected in August. It’s the latest evidence that the U.S. economy continues to power ahead, and it clears the way for the Federal Reserve to raise short-term interest rates at its meeting this month and beyond. Treasury yields jumped in response.
With the economy so strong and corporate profits so high, stock prices probably would be higher if not for investors’ worries about global trade, said David Joy, chief market strategist at Ameriprise Financial.
The United States and China have already imposed tariffs on $50 billion worth of each other’s products, and investors worry about how high the total will rise. The concern is that escalating tariffs could drag down corporate profits and economic growth.
“The underlying fundamentals of the economy are still quite healthy, but the longer this goes, the more destructive it’s going to be for supply chains,” Joy said.
Further evidence about those fundamentals came from Friday’s jobs report, which showed that employers hired more workers last month than economists expected and that the unemployment rate remained near an 18-year low. That helped push the average hourly wage up 2.9% from a year earlier, the fastest growth in eight years.
If wage gains keep accelerating, it could feed into higher inflation throughout the economy. That in turn could push the Fed to get more aggressive about raising interest rates, something it has pledged to do slowly and steadily.
Higher interest rates can hurt stock prices by making bonds look more attractive. The market went through a similar scenario in February, when the monthly jobs report showed a surprisingly big increase in wages. But investors have recently been preparing themselves for a total of four rate increases for 2018 following comments from the Fed.
“What everyone’s trying to figure out is: At what point do you get the intersection of higher wages pushing into inflation and the Fed starting to get a little more aggressive?” Joy said. “We’re not there yet, but this takes us one step closer to that, and historically that’s what brings expansions and bull markets to an end.”
The yield on the 10-year Treasury jumped to 2.93% to from 2.87%, and the two-year yield rose to 2.69% from 2.62%.
When bonds are offering higher yields, it can pull buyers away from stocks that pay big dividends. Utility stocks and real-estate investment trusts, which are among the market’s highest dividend payers, had some of the day’s steepest losses. Each sector fell 1.2%, tied for the largest loss among the 11 sectors that make up the S&P 500.
Tesla sank 6.3% to $263.24 after its chief accounting officer resigned after just a month on the job. Dave Morton said that he had no disagreements with Tesla’s leadership about its financial reporting but that he was not expecting so much public attention and such a fast pace at the company when he joined Aug. 6, the day before Chief Executive Elon Musk sparked turmoil by tweeting that he planned to take Tesla private.
Also, Bloomberg News reported Friday that Tesla’s human resources chief would not return from leave. And Thursday night, Musk appeared live on YouTube on a podcast in which he inhaled from what the host said was a joint containing marijuana and tobacco.
On the opposite end was Broadcom, which jumped 7.7% to $232.58 — to the biggest gain in the S&P 500 — after the chipmaker reported stronger-than-expected profit for the latest quarter.
Broadcom and other technology stocks have been riding fast profit growth to big stock-price gains, and the group has led the market for much of the last five years. That leadership faltered a bit this week, though, amid worries about increased scrutiny from Capitol Hill.
Quanex Building Products soared 20% to $19.45 after its quarterly earnings beat expectations.
Finisar climbed 7.5% to $20.15 after the company, which makes lasers used in facial recognition tech, reported stronger-than-expected quarterly results.
Benchmark U.S. crude slipped 2 cents to $67.75 per barrel. Brent crude, the international standard, rose 33 cents to $76.83 a barrel. Natural gas edged up a fraction of a cent to $2.78 per 1,000 cubic feet. Heating oil rose a penny to $2.22 a gallon. Wholesale gasoline rose 2 cents to $1.97 a gallon.
Gold slipped $3.90 to $1,200.40 per ounce. Silver fell 1 cent to $14.17 an ounce. Copper fell a penny to $2.62 a pound.