NEW YORK (AP) — Stocks are swinging between small gains and losses as Wall Street determines what to do with surprisingly strong data on the US job market released on Friday.
The S&P 500 was down less than 0.1% in afternoon trading after jumping from a 0.9% loss to a 0.4% gain earlier. On the optimistic side, employers hired far more workers last month than expected despite worries about a possible recession. However, the longer the economy remains, the more likely the Federal Reserve is to continue raising interest rates sharply in its fight against inflation.
Treasury yields climbed immediately after the jobs data release, underscoring expectations of Fed rate hikes, but then retreated. The two-year Treasury yield jumped to 3.15% from 3.03% on Thursday night, but then moderated to 3.09%.
The Nasdaq composite slid 0.1% after going from an early 1.2% loss to a 0.6% gain. Technology and other high-growth companies that make up a large portion of this index have been among the most vulnerable to rising rates recently.
The Dow Jones Industrial Average rose 5 points, or less than 0.1%, to 31,390, regaining ground after falling 172 points, while the Russell 2000 index of small company stocks fell 0, 4%. The major indices are on pace for a weekly gain.
The Federal Reserve has already raised its overnight rate three times this year, and the increases have become increasingly aggressive. Last month it raised rates to their highest since 1994, by three-quarters of a percentage point to a range of 1.50% to 1.75%. It was virtually zero as recently as March.
By making borrowing more expensive, the Fed has already slowed down parts of the economy. The housing market cooled, especially as mortgage rates rose due to Fed actions. Other sectors of the economy have also showed signs of weakeningand consumer confidence has fallen sharply as they face the highest inflation in four decades.
The hope on Wall Street was that the recently mixed data on the economy might convince the Federal Reserve to embrace easier rate hikes. The reprieve granted this week to soaring prices for oil and other commodities has helped bolster those hopes. But Friday’s jobs report may have undermined them.
Higher interest rates are purposely slowing the economy, and the Fed’s intention is to do enough to bring inflation down. It’s a sharp reversal of policy during the pandemic, which was to keep rates low in order to support economic growth. The danger is that rate hikes are a notoriously blunt tool, with long delays before their full effects are felt, and the Fed risks causing a recession if it acts too aggressively.
“You can’t just raise rates and shrink the balance sheet without doing the opposite of what it was doing before,” said Jerry Braakman, chief investment officer of First American Trust. “When you do the reverse, you can expect it to also do the opposite.”
Other central banks around the world are also raising interest rates and scrapping contingency plans put in place at the start of the pandemic to support financial markets.
A closely watched signal in the US bond market continues to warn of a possible recession. The yield on the two-year Treasury this week surpassed the yield on the 10-year Treasury and stayed that way on Friday. It’s a relatively rare event that some see as a precursor to a recession within the next year or two. Other warning signs in the bond market, which focus on shorter-term yields, are not flashing, however.
Even though the Fed can do the tricky job of crushing inflation and avoiding a recession, higher interest rates drive down the prices of stocks, bonds, cryptocurrencies, and all kinds of investments. in the meantime.
After Friday’s jobs report, traders are universally betting that the Fed will raise its short-term interest rate target by at least three-quarters of a percentage point at its meeting later this month. , according to CME Group. This would correspond to the big June move.
A small number of traders are even betting on a full percentage point increase. A week ago, no one expected such a big move, and some traders thought a rise of just half was the most likely scenario.
In overseas markets, stocks were mixed or slightly higher.
Tokyo’s main stock index fell after murder from former Japanese Prime Minister Shinzo Abe but remained in positive territory for the day. Abe, 67, died after being shot during a campaign speech in western Japan on Friday.
The Nikkei 225 edged up 0.1% after rising more than 1% before the attack. Abe oversaw an effort to shake up Japan’s economy dubbed “Abenomics”, and he stepped down as prime minister in 2020.
On Wall Street, GameStop shares fell 4.9% after the retailer abruptly ousted its chief financial officer. A day earlier, the stock that rocked Wall Street last year after climbing well beyond what professionals thought was reasonable soared 15.1% after announcing a 4-for-1 stock split .
On the winning side was Costco Wholesale, which rose 1.2% after saying its store sales were up 20% last month from a year ago.
AP Business Writer Joe McDonald contributed. Veiga reported from Los Angeles.
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