Dow trades in positive territory as U.S. stock indexes mostly decline after Friday's jobs report

By Christine Idzelis and Mark DeCambre

U.S. stock indexes were trading mostly down Friday afternoon, in a session that has been turbulent, following a monthly employment report that offered something for both optimists and pessimists, even if the headline figure came in far below economists’ estimates.

The Labor Department report is still being parsed by investors, who appear to be concluding that the monthly employment update won’t derail the Federal Reserve’s intention to wind down accommodative policies and eventually hike rates to combat inflation in 2022.

What are stock indexes doing?

On Thursday, the Dow fell 171 points, or 0.5%, to 36,236, the S&P 500 slipped 0.1% and the Nasdaq Composite eased 0.1%. The Nasdaq is now 6% below its November peak.

What’s driving markets?

The Dow Jones Industrial Average was holding on to modest gains Friday afternoon, while other major U.S. stock benchmarks were in the red as investors assessed the latest labor-market data.

The U.S. economy added 199,000 jobs in December, the Labor Department reported on Friday, well below the forecast from economists polled by The Wall Street Journal for a 422,000 rise for the month, highlighting some impact of the spread of Omicron on the jobs market.

While the headline number of the jobs report was worse than expected, the economy still looked “hot” when considering details such as the drop in the unemployment rate and increase in average hourly earnings, according to Bob Doll, chief investment officer of Crossmark Global Investments.

Read: The U.S. jobs report is not as weak as looks for the second month in a row. Here’s why

The U.S. unemployment rate dropped to 3.9% from 4.2%, while average hourly earnings jumped 19 cents, or 0.6%, to $31.31, the jobs report showed, proving a bright spot for some.

“We have a strong economy and we have an inflation problem and the Fed’s behind the curve,” Doll said by phone Friday. The jobs report gives the Federal Reserve “more leeway to get on with it,” he said, pointing to market expectations for the Fed to begin hiking its benchmark interest rate this year.

Market participants may be viewing Friday’s job report as lackluster but also not damaging enough to give central bankers reason to pause what has been expressed as a plan to tighten financial policy sooner and faster than had previously been expected.

“U.S. employers are having to pay up to get people back into the workforce and this is something that the Fed will consider when they look at the timeline for when to make their first move,” wrote Michael Hewson, chief market analyst at CMC Markets U.K., in a daily report.

Omicron poses “challenges” for labor-force participation that aren’t fully captured in Friday’s jobs report as the spread of the variant picked up after the employment data was collected for it, cautioned Luke Tilley, chief economist at Wilmington Trust, in a phone interview Friday. “It is a very tight labor market,” he said, citing the struggles of businesses to hire workers in the pandemic.

The jobs report also comes during a week in which the yield on the 10-year Treasury surged to around 1.8% — pressuring growth stocks and bolstering financials. The continued climb for government debt was helping to contribute to pressure on the yield-sensitive tech sector, with the Nasdaq Composite looking at its work weekly slide since Feb. 12 of 2021. Similarly, the large-capitalization Nasdaq-100 index was down more than 4% and on track for its sharpest weekly slump since Feb. 26.

Read: Value stocks have pulled ahead of growth in recent weeks. Is it a head-fake?

Financial shares were up about 5.3% so far this week but energy was the really winner, rising more than 10% as investors bet on a better performance for cyclicals in 2022 as rates rise.

Those moves came as San Francisco Fed President Mary Daly on Friday said that she endorses a gradual rate increase at the same time as an unwind of the central bank’s roughly $9 trillion balance sheet, which she says should come sooner than the last normalization cycle.

“I would prefer to see us adjust the policy rate gradually and move into balance sheet reduction earlier than we did in the last cycle,” Daly said at the annual meeting of the American Economic Association.

Which companies are in focus?

How are other assets faring?

–Steve Goldstein contributed to this report.

-Christine Idzelis

 

(END) Dow Jones Newswires

01-07-22 1547ET

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