Stocks fall, Treasury yields soar as Wall Street weighs jobs report

U.S. stocks opened lower on Friday as Wall Street weighed the government’s monthly jobs report, which showed hiring slowed in September but the labor market remained strong.

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

The S&P 500 (^GSPC) lost 1.3%, while the Dow Jones Industrial Average (^DJI) lost 300 points, or 1%. The Nasdaq Composite (^IXIC) led losses, down 1.8%. Meanwhile, in the bond market, Treasury yields soared, with the benchmark 10-year Treasury yield up 7 basis points to 3.90% and the 2-year yield up 8 basis points to 4.32%.

“The negative market reaction could be a sign that investors are dealing with the possibility that the Fed’s aggressive strategy won’t change in the near term,” Mike Loewengart, head of model portfolio construction at Morgan Stanley’s Global Investment Office, said in a note. . ” Keep in mind that the Fed’s next decision won’t have more data to digest until early November, the most important of which is next week’s inflation gauge.”

Stocks closed lower for a second day after a two-day blowout rally faltered. Still, the major indexes remain well off their 2022 lows and are on track to close on a positive note.

Investors are betting that signs of a cooling labor market will force Fed policymakers to reverse their aggressive rate hike path, especially after a slew of weak economic data showed a slump in manufacturing activity and fewer job openings. But many Wall Street strategists believe hopes of an imminent turn are premature.

In a recent research note, JPMorgan analysts said bullish monthly payrolls for stocks would need to be as low as 100,000 to see the market change its expectations for the Fed, while Bank of America analysts said, Before” will not change.

“The Fed’s job is far from over: rate hikes are expected to continue until negative payrolls are almost imminent,” noted a Bank of America team led by rates research strategist Meghan Swiber.

Moreover, Fed officials have sent a clear message in recent weeks that there are so far no plans to pull back from aggressive policy intervention.

“We still have a long way to go,” Chicago Fed President Charles Evans said on Thursday, suggesting the benchmark rate could hit 4.5% to 4.75% by spring 2023. The formulation 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. Officials at the Federal Open Market Committee (FOMC) are holding a two-day meeting as the Fed is expected to raise interest rates again this week to fight 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)

U.S. crude futures continued to climb this week following OPEC+’s worst production cuts since 2020. DataTrek Research noted that West Texas Intermediate (WTI) crude above $85 a barrel will prolong positive energy inflation trends, at least through early 2023. The firm also noted that oil prices are the Fed and the market’s expectations for near-term economic growth. “The Underrated Pivot Problem”. WTI futures were trading around $89 a barrel early Friday.

Elsewhere in the market, chipmakers came under pressure Friday morning after AMD lowered its third-quarter revenue forecast and warned of a “significant” inventory adjustment across the PC supply chain. Shares were down about 6% in premarket trading. Samsung also weighed on the industry after it reported its first profit decline since 2019, another sign of a struggling chip market.

Levi Strauss (LEVI) was also a mover on Friday after the retailer cut guidance, citing headwinds from a stronger dollar, slowing consumer demand and continued supply chain disruption. The stock was down about 5% in pre-market trading.

Meanwhile, DraftKing (DKING) shares rose nearly 8% on Thursday after Bloomberg News reported that ESPN was on the verge of a major new partnership with the sportsbook, according to sources familiar with the deal.

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

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