Stocks mixed and yields fly as jobs data raise rate outlook

Street sign for Wall Street outside the New York Stock Exchange.
The Standard & Poor’s 500 notched a 0.5% gain.
(Associated Press)

Wall Street closed out a mostly upbeat week for stocks Friday with a mixed finish for the major indexes and a surge in Treasury yields after a blowout U.S. jobs report raised investors’ expectations that the Federal Reserve may soon start raising interest rates sharply.

The Standard & Poor’s 500 settled for a 0.5% gain after swinging between a 0.6% drop and a 1.4% increase. The Dow Jones industrial average slipped 0.1% after a last-minute burst of selling. The Nasdaq composite rose 1.6%. The three indexes posted a weekly gain for the second week in a row.

The latest monthly jobs data were a key focus for investors. The Labor Department said employers added 467,000 jobs last month, triple economists’ forecasts. Some economists were even expecting a loss of jobs amid January’s surge in COVID-19 infections because of the Omicron variant.


U.S. employers stepped up hiring in January, adding 467,000 jobs despite a wave of Omicron infections that sickened millions of workers.

The stronger-than-expected data seem to lock in the Fed’s pivot toward fighting inflation by raising rates and making other moves that would ultimately act as a drag on markets. A 13.5% gain for online retail giant Amazon after the company delivered a strong earnings report helped lift the S&P 500, even though more stocks fell than rose in the benchmark index.

“Until you get a more set-in-stone picture for what tightening will be from the Fed, you should expect volatility to be similar to where we’ve been the last two weeks,” said Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth.

The S&P 500 rose 23.09 points to 4,500.53, while the Dow slipped 21.42 points to 35,089.74. The Nasdaq advanced 219.19 points to 14,098.01, while the smaller stocks in the Russell 2000 rose 11.33 points, or 0.6%, to 2,002.36.

Treasury yields leaped immediately after the jobs report’s release, tracking forecasts that the Fed will hike short-term interest rates more aggressively than earlier expected. The two-year yield, which tends to move with expectations for the Fed’s actions, jumped to its highest level since the start of the pandemic and is more than double what it was two months ago.

The wide expectation is for the Fed to raise short-term rates next month off their record low near zero, with the only question being the size of the move. Friday’s jobs report has investors now pricing in a nearly 32.7% probability of an increase of 0.50 percentage point, instead of the traditional 0.25 point. That’s more than double the probability that Wall Street saw a day earlier, according to CME Group.

Any increase would mark an abrupt turnaround from much of the last two years, when ultra-low rates helped prices surge for stocks and cryptocurrencies. Bonds paying more in interest would lead investors to feel less need to reach for such risky assets for returns.

That’s why Wall Street has been so shaky over the last month, as investors rush to make moves to get ahead of the Fed. On one hand, higher rates will probably mean stock investors pay lower prices for each $1 of profit that a company produces. On the other, stock prices could remain resilient despite that if those corporate profits keep rising.

Stocks seen as the most expensive have taken some of the hardest hits in Wall Street’s reordering. Much of the focus has been on tech and internet stocks that soared through the pandemic on expectations they can continue to grow regardless of the economy.

Even there, uncertainty still reigns as some tech-oriented companies have reported profits that continue to blow past analysts’ expectations, while others such as Facebook’s parent company have stumbled.

Amazon joined the list of the former after reporting stronger results for its latest quarter than analysts expected. Because it’s one of the biggest stocks on Wall Street in terms of market capitalization, its movements have an outsized effect on the S&P 500 and other indexes. The company also set a record for biggest one-day gain in value by a U.S. company, adding $191 billion to its value, according to FactSet.

Amazon’s big market cap jump came a day after a historic plunge in the shares of Facebook’s parent, Meta Platforms, erased more than $230 billion in value, which was the biggest one-day loss in value for a U.S. company. Meta fell an additional 0.3% on Friday.

Snapchat parent Snap soared 58.8% and Pinterest gained 11.2% after their own earnings reports.

Ford slumped 9.7% and was another one of the heaviest weights on the S&P 500 after it reported weaker-than-expected revenue and profit for the last quarter. Shortages of computer chips continue to hurt its auto production.

Such supply chain issues have been at the heart of the high inflation ripping around the world, and increases in prices at the U.S. consumer level are at a nearly 40-year high. That’s raising the pressure on the Fed to act decisively to rein in inflation. Data on wages within Friday’s jobs report may have upped the pressure.

Average hourly earnings for workers jumped 5.7% in January from a year earlier. That was a faster acceleration from December’s 4.9% rise than economists expected. Though such raises are great for workers, higher wages can also feed into longer-lasting inflation than if prices for just gasoline or other commodities were rising.

With the rising expectations for Fed action, the two-year Treasury yield jumped to 1.31% from 1.19% late Thursday. The 10-year yield leaped to 1.92% from 1.82%.

Associated Press writer Elaine Kurtenbach contributed to this report.