The S&P 500 ended lower on Friday, weighed down by Tesla and other technology-related stocks after a solid jobs report torpedoed recent optimism that the Federal Reserve might let up its aggressive campaign to reign in decades-high inflation. Canada’s main stock index edged higher, recouping some of this week’s decline, as stabilization in oil prices bolstered energy shares
Data showed U.S. employers hired far more workers than expected in July, the 19th straight month of payrolls expansion, with the unemployment rate falling to a pre-pandemic low of 3.5%.
The report added to recent data painting an upbeat picture of the world’s largest economy after it contracted in the first half of the year. That deflated investors’ expectations that the Fed might let up in its series of rate hikes aimed at cooling the economy.
“This is all about the Fed. A very strong jobs report like we had puts pressure on the Fed to tighten for longer,” said Adam Sarhan, chief executive of 50 Park Investments. “The market is scared the Fed is going to overshoot again. If they tighten too sharply and too long, that’s going to cause a hard landing, a deep recession.”
Tesla tumbled 6.6% and weighed heavily on the S&P 500 and Nasdaq. Facebook-owner Meta Platforms lost 2% and Amazon fell 1.2%, also pulling down the index.
U.S. Treasury yields climbed as odds increased of a 75-basis-point interest rate hike in September. That helped bank stocks, with JPMorgan rising 3%, and helping the Dow Jones Industrial Average stay in positive territory.
Focus now shifts to inflation data due next week, with U.S. annual consumer prices expected to jump by 8.7% in July after a 9.1% rise in June.
Several policymakers have this week stuck to an aggressive policy tightening stance until they see strong and long-lasting evidence that inflation was trending toward the Fed’s 2% goal.
Surging inflation, the war in Ukraine, Europe’s energy crisis and COVID-19 flare-ups in China have rattled investors this year.
A largely upbeat second-quarter earnings season has helped the S&P 500 bounce back by about 13% from its mid-June lows after a rough first-half performance.
The S&P 500 declined 0.16% to end the session at 4,145.19 points.
The Nasdaq declined 0.50% to 12,657.56 points, while the Dow Jones Industrial Average rose 0.23% to 32,803.47 points.
For the week, the S&P 500 rose 0.4%, the Dow fell 0.1% and the Nasdaq added 2.2%.
Lyft Inc surged almost 17% after the ride-hailing firm forecast an adjusted operating profit of $1 billion for 2024 after posting record quarterly earnings.
Advancing issues outnumbered falling ones within the S&P 500 by a 1.3-to-1 ratio. The S&P 500 posted four new highs and 30 new lows; the Nasdaq recorded 60 new highs and 38 new lows. Volume on U.S. exchanges was relatively light, with 10.6 billion shares traded, compared to an average of 10.8 billion shares over the previous 20 sessions.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 43.09 points, or 0.2%, at 19,620.13, its third straight day of modest gains. For the week, it was down 0.4%.
Canadian data showed that employment fell 31,000 in July but analysts predicted that this would not stop the Bank of Canada from hiking interest rates further in September to fight inflation.
“While today’s figures muddy the waters further for policymakers, the Bank of Canada will likely focus on the historic low unemployment rate and still strong wage growth to justify another non-standard rate hike at its next meeting,” said Andrew Grantham, senior economist at CIBC Capital Markets.
The energy sector rallied 1.9%, as the price of oil settled 0.5% higher at $89.01 a barrel, recovering some ground after earlier hitting its lowest level in six months. Investors have worried that a possible recession could hit fuel demand.
The TSX materials group, which includes precious and base metals miners and fertilizer companies, added 0.9%, as copper prices rallied, while industrials ended 0.6% higher.
Shares of Canopy Growth Corp fell 5.2%, although clawing back some of its earlier decline, as the company posted another core loss, denting investor hopes that the cannabis producer would turn profitable anytime soon.
Canaccord Genuity Group Inc shares ended nearly 14% lower after the investment company reported quarterly results missed analyst estimates.
Canadian government bond yields moved higher across the curve as yields on U.S. Treasuries soared.
The 10-year was up 6.8 basis points at 2.734% but falling 8.8 basis points below the yield on the equivalent U.S. bond. The Canadian five-year bond - influential on fixed mortgage rates - rose about 8 basis points to 2.851%.
A closely watched part of the U.S. Treasury yield curve inverted by as much as -45 bps on Friday, the deepest inversion since August 2000, sending an even stronger signal that a recession could be nearing.
U.S. rate futures have priced in a 69% chance of a 75 basis point hike, up from about 41% before the payrolls data. Futures traders have also factored in a fed funds rate of 3.57% and additional tightening of around 122 bps by the end of the year.
Reuters, Globe staff
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