NEW YORK (AP) — Good news about the economy remains bad news for Wall Street, and stocks fell sharply on Friday on fears that a still-strong U.S. jobs market could actually make a recession more likely.
The S&P 500 was down 3.1% in afternoon trading after the government said employers hired more workers last month than economists expected. Wall Street fears that the Federal Reserve will see only evidence that the economy has not yet slowed enough to bring inflation under control. This could pave the way for the Fed to continue to aggressively raise interest rates, potentially triggering a recession if done too harshly.
“The jobs picture is still good and it could be a little frustrating for the Fed,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. “The Fed thinks we need more unemployed workers to make sure inflation comes down and stays low.”
The Dow Jones Industrial Average was down 696 points, or 2.3%, at 29,239 as of 3:41 p.m. EST, and the Nasdaq composite was down 3.9%. The declines mark a return to form for stocks, which have fallen more than 20% from record highs this year on worries about inflation, interest rates and the possibility of a recession.
They had rallied a little earlier in the week in a powerful but short-lived rally after some investors squinted enough on some weaker-than-expected economic data to suggest the Fed might take easier action on rate hikes. rate. But Friday’s jobs report may have dashed those hopes of a Fed “pivot.” This is a pattern that has repeated itself several times this year.
Employers added 263,000 jobs last month. That’s a slowdown from July’s hiring pace of 315,000, but it’s still more than the 250,000 expected by economists.
Another discouraging element for investors, the unemployment rate has improved partly for the wrong reasons. Among those who are not working, fewer than usual are actively looking for a job. This is the continuation of a long-standing trend that could keep upward pressure on wages and inflation.
“We’re not out of the woods yet, but we should get closer as the impact of aggressive policy begins to be felt,” said Matt Peron, director of research at Janus Henderson Investors.
By raising interest rates, the Fed hopes to slow down the economy and the job market. The plan is to starve inflation of the purchases needed to keep prices rising even further. The Fed has already seen some effects, with rising mortgage rates hurting the housing sector in particular. The risk is that if the Fed goes too far, it could drag the economy into a recession. In the meantime, higher rates drive down the prices of stocks, cryptocurrencies, and other investments.
“It’s all about inflation at this point,” said Peter Essele, head of portfolio management for Commonwealth Financial Network. “We believe this will moderate over the next few quarters.”
All told, many investors see Friday’s jobs data keeping the Fed on track to raise its key rate by three-quarters of a percentage point next month. This would be the fourth such increase, triple the usual amount, and would bring the rate to a range of 3.75% to 4%. He started the year at practically zero.
Crude oil, meanwhile, continued its strong ascent and is heading for its biggest weekly gain since March. Benchmark U.S. crude jumped 4.7% to settle at $92.64 a barrel. Brent, the international standard, rose 3.7% to $97.92.
They have skyrocketed because the major oil-producing countries have pledged to reduce production in order to maintain prices. This should keep pressure on inflation, which is still near a four-decade high but hopefully moderating.
Rising crude helped stocks of oil-related companies be among the very few on Wall Street to rise on Friday. Oil services provider Halliburton climbed 1.5% and ConocoPhillips gained 0.5%.
Tech company stocks were leading the way in the opposite direction. They have been among the hardest hit by this year’s rate hike, which hurt the most investments seen as riskiest, most expensive or likely to make investors wait the longest for strong growth.
Microsoft fell 5.2% and Amazon 5%.
Beyond higher interest rates, analysts believe the next hammer blow to equities could be a potential decline in corporate earnings. Businesses face high inflation and interest rates that eat away at their profits, while the economy slows.
Advanced Micro Devices fell 13.5% after warning that its latest quarter revenue was expected to hit $5.6 billion, below its previous guidance range of $6.5 billion to $6.9 billion. AMD said the personal computer market weakened significantly in the quarter, hurting its sales.
Levi Strauss fell 12.9% after slashing its financial forecast for its fiscal year. He cited the rising value of the US dollar against other currencies, which is weakening the dollar value of overseas sales, as well as a more cautious outlook for the economies of North America and Europe.
Treasury yields rose immediately after the release of the jobs report, although they faltered slightly afterwards. The 10-year Treasury yield, which helps set rates for mortgages and other loans, climbed to 3.88% from 3.83% Thursday night.
The two-year yield, which more closely tracks Fed action expectations, fell to 4.31% from 4.26%. Earlier in the morning it climbed above 4.33% and was close to its highest level since 2007.
AP Business Writers Damian J. Troise, Joe McDonald and Matt Ott contributed. Veiga reported from Los Angeles.