Markets: News  

By Christine Idzelis and William Watts

Nasdaq Composite, S&P 500 decline Friday, but book another week of gains

U.S. stocks closed mostly lower Friday after a much stronger-than-expected reading on July employment reinforced expectations for the Federal Reserve to keep aggressively raising interest rates in its bid to rein in inflation.

How did stocks trade?

For the week, the Dow edged down 0.1%, while the S&P 500 rose 0.4% and the technology-heavy Nasdaq gained 2.2%, according to FactSet data. The Nasdaq and S&P 500 each rose for a third straight week, while the Dow snapped two straight weeks of gains, according to Dow Jones Market Data.

What drove markets?

Stocks mostly fell Friday after a surprisingly strong jobs report worried investors that the Federal Reserve may need to keep up its aggressive interest rate hikes to the cool economy and tame inflation.

"It puts 75 basis points squarely on the table for the Fed in September," said Jim Baird, chief investment officer of Plante Moran Financial Advisors, in a phone interview Friday, referring to market expectations for another large rate hike at the central bank's next meeting. The jobs report "ups the ante for the Fed and puts them in a position where it should be an easy call for them to continue to tighten."

Read:A red-hot July jobs number has traders penciling in another jumbo Fed rate hike

The U.S. economy added 528,000 jobs in July, the Labor Department reported Friday, far exceeding the 258,000 consensus estimate. The unemployment rate ticked down to 3.5%, matching the lowest level since the late 1960s, while average hourly earnings climbed 15 cents, or 0.5%, to $32.27.

Announcements of layoffs by a number of high profile companies had earlier raised concerns that a robust labor market may be softening.

Friday's jobs data triggered a sharp rise in U.S. Treasury yields and a lower stock-market opening as investors priced in prospects of further jumbo-sized rate hikes by the Federal Reserve.

Some analysts argue that the strong jobs data reinforces the idea that the economy can withstand aggressive Fed monetary tightening without falling into recession. Sharp falls in commodity prices, including oil, have meanwhile helped support the idea that inflation may be near a peak.

Fed-funds futures traders priced in a 66.5% chance of a 75 basis point rate hike in September, up from 34% on Thursday. Traders see a 33.5% probability of a 50 basis point move when the Fed next meets on September 20-21.

"The economy is clearly firing on all cylinders as this morning's job report showed growth across all sectors. The release should quiet the bears in the room who have been crying recession in recent days," said Peter Essele, head of portfolio management at Commonwealth Financial Network.

"Strong jobs growth and moderating price inflation should help extend the current relief rally through the end of the year," he said in emailed comments.

Read:Stifel's Barry Bannister raises S&P 500 target to 4,400 for 2022 and prefers 'cyclical growth' stocks

The monthly employment report, however, is a lagging indicator. And investors and policy makers still have lots of data to sift through between now and the Fed's September policy meeting. The next reading of the U.S. consumer-price index will be released next week.

"Friday's extremely strong jobs data suggests that many businesses are not allowing recession fears to stand in the way of hiring," said Ryan Belanger, managing principal and founder at Claro Advisors. "The jury is out on whether this robust pace of hiring can continue as many large and small companies have recently taken steps to slow hiring or even layoff existing employees."

"We believe next Wednesday's Consumer Price Index data will weigh more heavily on Federal Reserve policy than Friday's jobs report, as fighting inflation is the Fed's top focus," Belanger said in emailed comments.

Meanwhile, investors wrapped up another busy week of corporate earnings. Investors have largely viewed results as better than feared, providing another source of support for equities.

Don't miss:5 things we've learned from earnings season so far: How big an impact is inflation having?

More than 80% of S&P 500 index companies have now reported for the second quarter earnings season, and so far profits are up 8.6%, on a blended basis according to Refinitiv.

"We've got most of the second-quarter earnings out of the way now," said Chris Iggo, chief investment officer at AXA Investment Managers, by phone Friday. "There's not been any real disasters."

On the global front, geopolitical tensions remain an undercurrent for markets. China conducted "precision missile strikes" Thursday in waters off Taiwan's coasts as part of military exercises that have raised tensions in the region to their highest level in decades following a visit by U.S. House Speaker Nancy Pelosi to the island.

Hear from Carl Icahn at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. The legendary trader will reveal his view on this year's wild market ride.

Which companies were in focus?

How did other assets fare?

The Associated Press contributed to this article.

-Christine Idzelis

(END) Dow Jones Newswires

August 06, 2022 08:43 ET (12:43 GMT)

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