The stock market was mixed Friday to finish a strong week. That’s even after the June employment report revealed that the U.S. economy added more jobs than expected, spurring bets of a more hawkish Federal Reserve.
For the week, the Dow, the S&P 500 and the Nasdaq Composite gained 0.8%, 1.9% and 4.6%, respectively.
The U.S. added 372,000 jobs for the month of June, higher than economists’ estimates of 250,000 and just below May’s revised result of 384,000. Wages gained 5.1% year over year, slower than the 5.3% gain seen in May.
Overall, the job market looks stronger than expected. To be sure, the April and May results were revised lower by a total of 74,000. “On net, those revisions make the headline beat for June less notable, but the overall takeaway remains that the labor market remains reasonably strong despite,” wrote Jason Pride, chief investment officer of Private Wealth at Glenmede.
The solid report means the Federal Reserve’s interest rate hikes may not slow down as soon as markets had hoped. The Fed has made clear that its main priority is to lower inflation, and price increases may stick around for longer if the labor market is healthy.
The bond market is, therefore, reflecting slightly increased Fed hawkishness, or willingness to aggressively lift rates.
The 2-year Treasury yield, which attempts to forecast the level of the fed funds rate a couple of years from the present, climbed from around 3.0% just before the jobs report to 3.12%.
The 10-year yield rose from just under 3% before the report to 3.1%.
Importantly, the 10-year yield did not gained much, and it’s lower than the 2-year yield. That “inverted yield curve” means that markets see the Fed’s plan to rapidly hike rates as potentially damaging to inflation and economic growth for the longer term.
That view hasn’t yet ended the recent stock market rally. The S&P 500 has risen 7% from its June intraday low, as markets have been hoping that the Fed is getting closer to the end of its aggressive rate hiking path.
At its July meeting, the Fed is expected to lift the benchmark lending rate by either half or three-quarters of a percentage point. That aggressiveness could stick around for a bit longer than previously expected—and Friday’s jobs number solidifies the expectation of a three-quarter point hike, wrote Charlie Ripley, senior investment strategist at Allianz Investment Management.
Fed policy expectations could become more hawkish on July 13, when the consumer price index is released. Economists expect a second consecutive inflation reading of above 8%.
That all may feel scary for the moment, but the stock market stabilized this week in part because financial markets have reflected much of the hawkishness already.
“A lot of the risk has [already] been run out of the market,” wrote Louis Navellier, founder of Navellier & Associates.
While it’s entirely plausible that stock and bond prices could keep falling from here, the declines could easily get smaller. The stock market’s Friday morning drop wasn’t as ugly as other ones this year, when the indexes fell more than 2% on hawkish Fed bets. And rates are up, but they aren’t surging to their recent highs.
“The bigger sell-offs in [bond] yields are probably behind us,” said Marvin Loh, senior global macro strategist for State Street.
Investors hope the same is true going forward for stocks.
Overseas, London’s
FTSE 100
rose 0.1%. Tokyo’s
Nikkei 225
gave up significant intraday gains to end 0.1% higher, as Japan reeled from reports that former Prime Minister Shinzo Abe was shot and killed while giving a speech.
Here are some stocks on the move Friday:
Twitter
(ticker: TWTR) lost 5.1%.
Tesla
CEO Elon Musk’s acquisition of the social-media company may be in jeopardy as a result of a conflict over reliable spam figures, the Washington Post reported, citing anonymous sources.
After rallying 15% in the previous session following the announcement of its four-for-one stock split, shares in
GameStop
(GME) dropped 4.9%. News broke late Thursday that the videogame retailer’s chief financial officer would be departing the company amid plans for corporate job cuts.
Upstart Holdings
(UPST) sank 19.7% after the artificial-intelligence lending company cut its second-quarter revenue guidance.
PayPal Holdings
(PYPL) fell 2.2% after an analyst at Redburn downgraded the stock to Neutral from Buy.
Spirit Airlines
(SAVE) stock gained 4.2% after the company said in a statement late Thursday that it delayed for the third time a shareholder vote on a merger with
Frontier Group Holdings
(ULCC) so the discount carrier can continue discussions with both Frontier and
JetBlue Airways
(JBLU). Frontier rose 3.8% Friday, while JetBlue slipped 2.3%.
Costco Wholesale
(COST) finished 1.3% higher after the company released its June sales data, which continued to rise thanks to elevated gas prices.
(Angela Palumbo contributed to this report.)
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com and Jack Denton at jack.denton@dowjones.com
Read More: Stocks End Mixed After Solid Jobs Report