Wall Street keeps swinging amid fears about rates, economy: AP

NEW YORK: Stocks are swinging sharply on Friday, despite a strong report on the US jobs market, as Wall Street’s top worry remains whether the Federal Reserve’s zeal to halt inflation will force the economy into a recession, according to AP.

The S&P 500 was 0.2 percent lower after data showed US employers continue to hire rapidly, and workers are getting relatively big raises, though short of inflation.

The market’s initial reaction was to sell off, with the S&P 500 down 1.9 percent, as analysts said the strong numbers would keep the Fed on track for sharp and steady increases in interest rates to halt inflation.

But the market trimmed its losses after an early burst for Treasury yields cooled off and as economists pointed to some mixed signals on where inflation’s heading.

The Dow Jones Industrial Average was down 118 points, or 0.4 percent, at 32,879, as of 11 a.m. Eastern time, after cutting an early loss of 523 points. The Nasdaq composite was 0.3 percent lower after trimming an early 2.7 percent drop.

The swings were even wilder earlier this week, as all kinds of markets, from bonds to cryptocurrencies, grapple with a new market order where the Federal Reserve is aggressively moving 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 snuff out the highest inflation in four decades, but it risks choking off growth 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 percent 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 aggressively 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 US 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 leaped toward 3.13 percent shortly after the data’s release, before moderating to 3.09 percent. That’s still close to its highest level since 2018 and more than double where it started 2022, at just 1.51 percent.

The two-year Treasury yield, which moves more on expectations for Fed policy, slipped to 2.69 percent from 2.71 percent late Thursday. It was close to 2.77 percent earlier in the morning.

The swings came as economists pointed to some possible signs of peaking within the jobs market, which may be an early signal that inflation is set to moderate soon. That could ultimately mean less pressure on the Federal Reserve to raise rates so forcefully.

BlackRock’s chief investment officer of global fixed income, Rick Rieder, pointed to surveys showing companies’ ability to hire becoming easier and other signs that some slack may be building in the red-hot job market.

“That raises the question of whether the Fed may slow its tightening process at some point over the coming months as a result of these expected trends, but while that’s possible recent data won’t provide markets much comfort of that happening anytime soon,” Rieder said in a report.

For now, expectations of rising interest rates have been hitting high-growth stocks in particular.

Much of that is because many of them are seen as the most expensive following years of leading the market. Many tech-oriented stocks have been among the market’s biggest losers this year, including Netflix, Nvidia and Facebook’s parent company Meta Platforms.

Nearly half the Nasdaq stocks were recently down by at least 50 percent from their 52-week highs, according to a BofA Global Research report from chief investment strategist Michael Hartnett.