Stocks sink, Treasury yields spike as Wall Street frets over jobs report

U.S. stocks fell on Friday as Wall Street weighed the monthly government jobs report, which showed working conditions remained tight in September despite a slowdown in hiring, a sign that the Federal Reserve will proceed to aggressive monetary tightening.

The US economy added 263,000 jobs last month as the unemployment rate fell to 3.5%. Economists had expected payrolls to rise by 255,000 and unemployment to remain at 3.7%.

The S&P 500 (^GSPC) sank 2.1%, while the Dow Jones Industrial Average (^DJI) fell 450 points, or 1.5%. The Nasdaq Composite (^IXIC) led the way down, falling nearly 3%. Meanwhile, in the bond market, Treasury yields rose, with the benchmark 10-year note topping 3.8% and the rate-sensitive 2-year yield at nearly 4.3%.

“The negative market reaction may be a sign that investors are processing the likelihood that there will be no change in the Fed’s aggressive playbook in the near term,” said Mike Loewengart, head of model portfolio construction at the Morgan Stanley’s Global Investment Office, in a note. “Keep in mind that the Fed’s next decision won’t be until early November, so there will be a lot more data to digest, not the least of which is next week’s inflation gauge.”

Investors were betting that signs of a cooling labor market would force Federal Reserve policymakers to reverse course on their aggressive rate hike path, especially after a series of weaker economic releases showed a sharp contraction in the ‘manufacturing activity and fewer jobs. But many Wall Street strategists have argued that hopes of an imminent pivot are premature, a sentiment that this jobs report appears to reinforce.

In recent research notes, JPMorgan analysts said equity bulls would need a monthly payrolls print as low as 100,000 to see the market alter its Fed expectations, while Bank of America analysts say a pivot won’t happen “until payrolls pick up.”

“The Fed’s work is far from over — expect hikes to continue until negative payrolls are almost at hand,” noted a BofA team led by rates research strategist Meghan Swiber.

In addition, Federal Reserve officials themselves have sent clear messages in recent weeks that there are no plans so far to pull back from aggressive policy intervention.

“We have a long way to go,” Federal Reserve Bank of Chicago President Charles Evans said Thursday, indicating that the benchmark rate will likely be between 4.5% and 4.75% in the spring of 2023. “”Inflation is high right now and we need a tighter rate. establishment of monetary policy”.

WASHINGTON, DC - JULY 26: Construction workers look outside the Marriner S. Eccles Federal Reserve Building on July 26, 2022 in Washington, DC.  Federal Open Market Committee (FOMC) officials are holding a two-day meeting as the Federal Reserve is expected to raise interest rates again this week to combat inflation.  (Photo by Anna Moneymaker/Getty Images)

WASHINGTON, DC – JULY 26: Construction workers look outside the Marriner S. Eccles Federal Reserve Building on July 26, 2022 in Washington, DC. (Photo by Anna Moneymaker/Getty Images)

US crude oil futures continued this week’s rally after OPEC+’s sharpest production cut since 2020. DataTrek Research noted that West Texas Intermediate (WTI) crude at more than $85 a barrel will extend positive trends in energy inflation at least through early 2023. The firm also noted that oil prices are an “understated support issue” for the Federal Reserve and market expectations for near-term economic growth time limit. WTI futures traded above $90 a barrel early Friday, up $10 this week.

Elsewhere in the markets, chipmakers were under pressure on Friday morning after Advanced Micro Devices ( AMD ) cut its third-quarter revenue guidance and warned of “significant” inventory corrections across the supply chain of pc. Shares were down 10% Friday afternoon. Also weighing on the sector was Samsung reporting its first profit drop since 2019, another sign of a troubled chip market.

Levi Strauss ( LEVI ) was also a mover on Friday after the retailer cut its guidance, citing headwinds from a stronger dollar, slowing consumer demand and lingering supply chain failure. Shares fell nearly 9% on Friday.

Meanwhile, shares of DraftKing ( DKING ) rose 3% after Bloomberg News reported Thursday that ESPN is nearing a new partnership deal with the sports betting company, citing sources familiar with the deal.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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