Dow ends down nearly 350 points after jobs data, Fed hawkish comments affect stocks

The S&P 500 is on track to end Friday with another weekly drop, which would be its fifth straight drop, the longest losing streak since last spring.

What drives the market?

Labor market data released on Thursday showed jobs still good despite the Fed’s biggest rate hike in about four decades and despite news about mass layoffs at Amazon.com Inc. AMZN, Salesforce Inc. CRMGenesis Global Trading Inc. and other technology companies.

ADP private payroll data shows 235,000 jobs have been created in December, beating expectations for 153,000 new jobs, according to economists polled by The Wall Street Journal. The data also showed large increases in workers’ wages.

Initial Claims for unemployment benefits also fell last week to 204,000, the lowest level since September. Job openings data released Wednesday showed more than 10 million job openings in the US, another sign that the labor market remains undisturbed despite Fed rate hikes and layoffs. financial and technology companies.

The reaction of stocks and bond yields is the latest example of the “good news is bad news” dynamic playing out in the market.

“As long as we are still in a rate hike cycle, good economic data should be news,” said Art Hogan, chief market strategist at B.Riley Wealth, in a phone interview with MarketWatch. bad for the market.

On Friday morning, investors will receive monthly non-farm payroll report for December from the US Department of Labor.

See: US job growth slowed to 200,000 in December, but that’s still too much for the Fed

“Although we should get a better picture of the job market by the end of the day, we should get a better picture of the job market by the end of the day,” said Mike Loewengart, head of modeling portfolio building at Morgan Stanley’s Global Investment Office. Tomorrow, private payrolls are higher than expected and the number of jobless claims below are signs that the labor market remains resilient.” .

Comerica Bank chief economist Bill Adams predicts the December jobs report will show the unemployment rate flat for the month at 3.7% and 203,000 nonfarm jobs. part-time job from November.

“The unemployment rate has been contained over the past few months by the ‘triad’ of flu, Covid and RSV infections, keeping potential job seekers from entering the workforce and holding back the measured unemployment rate. measure,” he said in an emailed comment Thursday. “The government does not consider unemployed people to be people who are not working but are not looking for work because they are sick, taking care of sick children or looking after children at an understaffed preschool.”

However, Adams forecasts the unemployment rate will rise to around 4.5% by mid-2023, both due to easing seasonal illnesses and widespread economic weakness.

Fed Chairman Jerome Powell has said that the labor market must weaken to prevent strong wage increases for workers from fueling inflation.

Hawkish comments from senior Fed officials also hit stocks on Thursday.

Kansas City Federal Reserve Bank President Esther George spoke on CNBC on Thursday to say she raised her forecast for the federal funds rate above 5%. and hopefully it will stay there for a while as the central bank continues its fight against inflation. Meanwhile, Atlanta Fed President Raphael Bostic also said Thursday that the central bank still has “a lot of work to do” to tame inflation.

Her comment echoed the hawkish tone from Minneapolis Fed President Neel Kashkari, who shared his outlook in a blog post on Wednesdayas well as minutes of the Fed’s December meeting showing that the central bank was generally unhappy with the market’s reaction to the rate hike.

James Bullard, chairman of the Federal Reserve of St. Louissaid on Thursday afternoon that high inflation is likely to ease in 2023. He also acknowledged that while the benchmark rate is still not in a zone that could be considered restrictive enough, it is getting closer.

See: Fed into stock markets: Massive rallies will only prolong painful inflation war

Higher bond yields and a strong dollar also affect stocks. 10-year bond yield
TMUBMUSD10Y,
3.719%

rose 1.1 basis points to 3,720% from 3.709% on Wednesday, reversing some of its declines in the previous few sessions. US Dollar Index ICE
DXY,
+0.86%,
a measure of the dollar’s strength against a basket of major currencies, up 0.9% to 105.15.

Concentrated companies

• Walgreens Shoe Alliance
  WBA,
  -6.13%

  the stock finished 6.1% lower even after the drugstore chain first quarter financial income statement beat analyst estimates and raised its full-year revenue outlook in part thanks to the US healthcare segment’s acquisition of Summit Health.

• Amazon
  AMZN,
  -2.37%

  fell 2.4% after
  Unknown
  announced 18,000 job cuts or about 1% of its workforce, becoming the latest tech company to cut back after expanding rapidly during the pandemic.

• Silvergate Capital
  SI,
  -42.73%

  dropped 42.7% after it said digital asset deposits fell $8.1 billion from September 30 to year-end to just $3.8 billion following the exchange’s collapse FTX cryptocurrency. caused a run-off forcing the bank to sell assets heavy losses to cover about $8.1 billion in withdrawals. The bank said it was forced to sell $5.2 billion in debt to cover the withdrawals and recorded a loss of $718 million in the fourth quarter on selling that debt.

• Shares of other lenders with ties to the crypto industry also fell, including SVB Financial Group
  SIVB,
  -3.11%

  and signature bank
  SBNY,
  -6.02%,
  down 3.1% and 6% respectively.

• Repairs Inc.
  SFIX,
  +9.38%

  stock rose 9.4% when The company announced the plan to reduce the number of salaried employees by 20%.

— Jamie Chisholm contributed to this post