Stocks Are Slipping After Jobs Report

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Stocks were down Friday, as earlier gains faded after the March jobs report. The report was strong enough to prompt markets to bet that the Federal Reserve will act more aggressively in lifting interest rates.

In afternoon trading, the Dow Jones Industrial Average was down 98 points, or 0.3%. The S&P 500 fell 0.5%, while the Nasdaq Composite was down 0.6%.

The U.S. added 431,000 jobs in March, the Labor Department reported Friday, less than the expected 490,000 and lower than February’s result of 750,000, though that result was revised upward from 678,000. The unemployment rate fell to 3.6% from 3.8%. 

The jobs report was “below expectations but you did get an upward revision,” said Scott Brown, chief economist at Raymond James.

Average hourly earnings—or wages—rose 0.4% month-over-month, in line with expectations and faster than the previous gain of 0.1%.

The report, which is seen as one that supports already high inflation, raises the likelihood that the Federal Reserve will lift the federal-funds rate by a half a percentage point in May, rather than the standard quarter-point increase.

The bond market signaled as much. The 2-year Treasury yield, which attempts to forecast the level of short-term interest rates in the next couple of years, jumped to 2.43% from 2.39% just minutes before the report. It’s now yielding a higher rate than the 10-year Treasury yield, which means the yield curve is inverted. That signifies that markets see high inflation—and higher rates—in the near term causing damage to economic demand in the longer term.

It’s not just the Treasury market. The fed funds futures market is forecasting a 76% chance that the Fed lifts rates by a half a point, up from about 70% just before the jobs report.

Either way, there isn’t much right now that would cause the Fed to step away from its aggressive stance on tightening monetary policy. “Inflation should remain the top concern from the Fed, as it will likely continue on its tightening path to prove its inflation-fighting convictions to the market and economic participants,” wrote Jason Pride, chief investment officer of Private Wealth at Glenmede. 

That makes the stock market’s recent rally shaky. An increase in rate hike expectations is not exactly a help to an S&P 500 that rose almost 9% from its closing low of the year hit in early March through Thursday’s close. 

“That was a historic move in a short amount of time,” said Frank Cappelleri, chief market technician at Instinet. “Very good in terms of getting off the lows, but what can we do with this [rally]?” 

Energy stocks look particularly vulnerable to declines. The

Energy Select Sector SPDR
Fund (XLE) has risen 13% from its Feb. 10 level, just before it became clear that Russia was soon to invade Ukraine. Since then, the price of WTI crude oil rose to as high as $130 a barrel from $89. Oil has since fallen back down to $99 a barrel, but oil stocks are still just a touch below their peaks for the year.

Strategists at RBC downgraded their rating on energy stocks to Market Weight. That’s partly because the strategists note that the firm’s energy stock analysts are now less optimistic on energy stocks than analysts are for other sectors.

Overseas, London’s

FTSE 100
rose 0.3%, and Hong Kong’s

Hang Seng Index
notched a daily gain of 0.2%.

Here are five stocks on the move Friday:

GameStop

(ticker: GME) jumped 3.2%. The videogame retailer and so-called meme stock said in a regulatory filing late Thursday that it planned to ask shareholders to increase the number of authorized shares to 1 billion from 300 million. A higher share count would allow the company to implement a stock split.

Wynn Resorts

(WYNN) stock gained 0.7% after getting upgraded to Buy from Neutral at Citigroup. 

Comerica

(CMA) stock initially rose, then dropped 0.4% after getting upgraded to Overweight from Neutral at JPMorgan and to Neutral from Sell at Goldman Sachs. 

Wayfair

(W) stock fell 1.1% after getting downgraded to Underweight from Equal Weight at Barclays. 

Urban Outfitters

(URBN) stock dropped 3.3% after getting downgraded to Equal Weight from Overweight at Barclays. 

Write to Jack Denton at jack.denton@dowjones.com and Jacob Sonenshine at jacob.sonenshine@barrons.com