NEW YORK (AP) — Stocks are falling Friday, despite a strong report on the U.S. jobs market, as Wall Street’s top worry remains whether the economy can withstand the sharp rises in interest rates set to slam into it.
The S&P 500 was 1.8% lower in early trading after data showed U.S. employers hired more workers last month than expected. Just as important for Wall Street was that workers continued to get raises, with average hourly pay up 5.5% over the last year, roughly in line with economists’ expectations. While the strength is encouraging, markets worry too-hot wage gains could cause already high inflation to worsen.
The Dow Jones Industrial Average was down 458 points, or 1.4%, at 35,539, as of 10 a.m. Eastern time, and the Nasdaq composite was 2.5% lower.
The S&P 500 is on track to close out a fifth straight losing week, which would be its longest such streak in more than a decade, but it went through violent swings to get there. All kinds of markets, from bonds to cryptocurrencies, have also been unsettled as the Federal Reserve aggressively moves to yank supports for the economy put in place through the pandemic.
The Fed is hoping to raise rates and slow the economy enough to drive down the highest inflation in four decades, but it risks creating a recession if it goes too far or too quickly. The Fed raised its key short-term interest rate this week by a half a percentage point, the largest such increase since 2000. It also said more increases that size are likely on the way.
Not only do higher interest rates tap the brakes on the economy by making it more expensive to borrow, they also put downward pressure on prices of all kinds of investments. Beyond interest rates and inflation, the war in Ukraine and the continuing COVID-19 pandemic are also weighing on markets.
Stocks nevertheless zoomed higher Wednesday afternoon, after latching onto a sliver of hope from Federal Reserve Chair Jerome Powell’s comments following the latest rate increase. He said the Fed was not “actively considering” a jump of 0.75 percentage points at its next meeting, something markets had earlier seen as a near certainty.
Jubilance was the market’s instant reaction, with the S&P 500 soaring 3% for its best day in nearly two years. It sobered up the next day, though, amid recognition that the Fed is still set to raise rates sharply and steadily in its battle against inflation. The S&P 500 on Thursday lost all its prior day’s gains, plus a bit more, in one of its worst days since the early 2020 crash caused by the coronavirus pandemic.
That may be why stocks continued to falter on Friday, after data showed hiring is still strong and pressure remains high on companies to raise pay for workers.
“These data do not change the outlook for Fed policy; the rates trajectory remains upward in the near term,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a note.
Treasury yields were wobbling following the release of the jobs report. The yield on the 10-year Treasury neared 3.13% shortly after the data’s release, before moderating to 3.06%. That’s still close to its highest level since late 2018 and more than double where it started 2022, at just 1.51%.
The two-year yield, which moves more on expectations for Fed policy, slipped to 2.65% from 2.71% late Thursday. It neared 2.77% earlier in the morning.
Rising interest rates have been hitting high-growth stocks in particular, in part because many of them are seen as the most expensive following years of leading the market. That’s why tech-oriented stocks have been among the market’s biggest losers this year, with the Nasdaq’s loss this week more than double the overall markets.
AP Business Writer Joe McDonald contributed.