Wall Street hesitates after surprisingly strong jobs report

NEW YORK (AP) — Stocks swing between small gains and losses as Wall Street determines what to do with surprisingly strong U.S. labor market data released on Friday.

The S&P 500 rose 0.1% at midday after earlier surging from a 0.9% loss to a 0.3% gain. On the optimistic side, employers hired far more workers last month than expected despite worries about a possible recession. However, the longer the economy remains, the more likely the Federal Reserve is to continue raising interest rates sharply in its fight against inflation.

Treasury yields climbed immediately after the jobs data release, underscoring expectations of Fed rate hikes, but then retreated. The two-year Treasury yield jumped to 3.15% from 3.00%. But it then moderated to 3.07%, and its decline coincided with a rally in equities.

The Nasdaq composite rose 0.3% after rising from an early 1.2% loss to a 0.4% gain. Technology and other high-growth companies that make up a large portion of this index have been among the most vulnerable to rising rates recently.

The Dow Jones Industrial Average rose 84 points, or 0.3%, to 31,469, recovering from a 172-point decline.

The Federal Reserve has already raised its overnight rate three times this year, and the increases have become increasingly aggressive. Last month it raised rates to their highest since 1994, by three-quarters of a percentage point to a range of 1.50% to 1.75%. It was virtually zero as recently as March.

By making borrowing more expensive, the Fed has already slowed down parts of the economy. The housing market cooled, especially as mortgage rates rose due to Fed actions. Other parts of the economy have also shown signs of flaggingand consumer confidence has fallen sharply as they face the highest inflation in four decades.

The hope on Wall Street was that the recently mixed data on the economy might convince the Federal Reserve to embrace easier rate hikes. This week’s reprieve from soaring oil and other commodity prices has helped bolster those hopes. But Friday’s jobs report may have undermined them.

Higher interest rates are purposely slowing the economy, and the Fed’s intention is to do enough to bring inflation down. The danger is that rate hikes are a notoriously blunt tool, with long delays before their full effects are felt, and the Fed risks causing a recession if it acts too aggressively. Other central banks around the world are also raising interest rates and scrapping contingency plans put in place at the start of the pandemic to support financial markets.

A closely watched signal in the US bond market continues to warn of a possible recession. The yield on the two-year Treasury this week surpassed the yield on the 10-year Treasury and stayed that way on Friday. It’s a relatively rare event that some see as a precursor to a recession within the next year or two. Other warning signs in the bond market, which focus on shorter-term yields, are not flashing, however.

Even though the Fed can do the tricky job of crushing inflation and avoiding a recession, higher interest rates drive down the prices of stocks, bonds, cryptocurrencies, and all kinds of investments. in the meantime.

After Friday’s jobs report, traders are universally betting that the Fed will raise its short-term interest rate target by at least three-quarters of a percentage point at its meeting later this month. , according to CME Group. This would correspond to the big June move.

A small number of traders are even betting on a full percentage point increase. A week ago, no one expected such a big move, and some traders thought a rise of just half was the most likely scenario.

In overseas markets, stocks were mixed or slightly higher.

Tokyo’s main stock index fell after the assassination from former Japanese Prime Minister Shinzo Abe but remained in positive territory for the day. Abe, 67, died after being shot during a campaign speech in western Japan on Friday.

The Nikkei 225 edged up 0.1% after rising more than 1% before the attack. Abe oversaw an effort to shake up Japan’s economy dubbed “Abenomics”, and he stepped down as prime minister in 2020.

On Wall Street, GameStop shares fell 2.7% after the retailer abruptly ousted its chief financial officer. A day earlier, the stock that rocked Wall Street last year after climbing well beyond what professionals thought was reasonable soared 15.1% after announcing a 4-for-1 stock split .

On the winning side was Costco Wholesale, which rose 2% after saying its store sales were up 20% last month from a year ago.

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AP Business Writer Joe McDonald contributed.

Abdul J. Gaspar