Wall Street swings sharply amid worries about rates, economy

NEW YORK –

Stocks are down on Friday but they are swinging strongly as Wall Street struggles to interpret strong U.S. job reports amid concerns that the Federal Reserve could cause a recession to stop inflation.

The S&P 500 was 0.5% lower in afternoon trading after data showed U.S. 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%, as analysts saidThe Fed would continue to increase interest rates in an effort to curb inflation with sharp and consistent increases, despite the strong numbers. But the market trimmed its losses and the S&P 500 flipped to a brief gain after an early burst for Treasury yields cooled and as economists pointed to some mixed signals on where inflation’s heading.

After slipping between a loss 523 points or a gain 57, the Dow Jones Industrial Average fell 151 points (0.5%) at 32,846, 12:46 Eastern Time. After temporarily erasing the 2.7% initial drop, the Nasdaq Composite was 0.7% lower.

The swings were even greater earlier in the week as all markets, bonds and cryptocurrencies, had to deal with a new order where the Federal Reserve aggressively moved to yank support for the economy that was established through the pandemic.

Although the Fed wants to raise rates and slow down economy enough to end the most severe inflation in forty years, too much or too soon could lead to stagnation of growth. This week, the Fed increased its key short-term rate by half a point. It is the largest increase in this range since 2000. It also saidMore increases in size are possible.

Higher interest rates not only put a halt to the economy’s ability to borrow as it becomes more costly, but they also cause a downward pressure on all types of investments. Markets are also being affected by inflation and interest rates, as well as the ongoing COVID-19 pandemic and war in Ukraine.

However, stocks rose Wednesday afternoon after grabbing a little bit of hope from Federal Reserve Chair Jerome Powell following the latest rate hike. He saidThe Fed wasn’t “actively considering” a bigger jump of 0.75 percent at its next meeting. This was something that markets previously considered to be a near certainty.

Jubilance was the market’s instant reaction, with the S&P 500 soaring 3% for its best day in nearly two years. Despite the fact that the Fed continues to increase rates aggressively in the fight against inflation, the market recovered and felt better the next day. 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.

Stocks fell Friday morning after data showed that hiring was still strong and companies are under pressure to increase workers’ pay.

Rubela Farooqi (chief U.S. economist, High Frequency Economics) wrote that “these data do not alter the outlook for Fed Policy; the rates trajectory remains upwards in the near term.”

Many of those factors that are driving inflation higher could persist well into 2022. saidSameer Samana is senior global market strategist at Wells Fargo Investment Institute. Samana believes that investors may be closer to adjusting for Fed’s aggressive policy shift by the latest market swings. said.

He stated that “Powell’s conference did not change anything; there’s still plenty inflation.” said. “You are probably reaching the point where the Fed will not be as important a market driver.”

The release of the jobs report saw sharp swings in Treasury yields.

The yield on the Treasury two-year note, which is linked to Fed policy expectations, shot up as high as 2.77% in the morning. However, it dropped to 2.66% after dropping from 2.71% at the end of Thursday.

Shortly after data was released, the yield on the 10-year Treasury shot up to 3.13% before settling down to 3.08%. This is still very close to the 2018 peak and nearly twice as high as where it began in 2022 at 1.51%.

The fluctuations occurred as economists pointed out possible signs that the employment market was peaking, which could indicate that inflation may slow down. This could lead to less pressure for the Federal Reserve not to raise rates so strongly.

Although workers’ salaries were 5.5% higher than last year, which was in line with economists expectations, the average hourly wage growth from March levels was slightly lower than forecasts. While slower wage gains can be discouraged for workers, investors see them as less likely to cause inflation.

Rick Rieder is BlackRock’s chief global fixed-income investment officer. He pointed out surveys that show hiring companies becoming more easy and other signs of a slowing economy.

“This begs the question as to whether the Fed might slow its tightening process in the coming months due to these expected trends. But while recent data won’t provide markets with much comfort about that happening anytime soon, it’s possible that that’s the case,” Rieder. saidIn a report

Expectations of rising interest rates are currently affecting high-growth stocks, in particular.

Many of these stocks are considered the most expensive after years of leading the market. Nvidia, Netflix and Meta Platforms, which are all tech-oriented stocks, have been the biggest losers in this year’s market.

According to Michael Hartnett’s BofA Global Research report, almost half of Nasdaq stocks had fallen by at most 50% from their 52 week highs.

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AP Business Writers Joe McDonald & Damian J. Troise contributed