Stocks hold steady, Treasury yields leap after jobs data
NEW YORK — Stocks are holding steady on Wall Street Friday while Treasury yields soar, after a healthy report on the U.S. job market strengthened expectations for coming interest-rate hikes.
The S&P 500 was virtually unchanged in morning trading after flitting between small gains and losses. As markets around the world slow down, the index could win its first three-week winning streak in three weeks. However, concerns remain about high inflation and higher interest rates from Federal Reserve as well as the economic impact of the war in Ukraine.
The Dow Jones Industrial Average was down 68 points, or 0.2%, at 34,610, as of 10: 39 a.m. Eastern time, and the Nasdaq composite was 0.2% higher. The bond market saw the most activity, with the yield on the 2-year Treasury reaching its highest level in over three years.
Yields jumped after a U.S. government report showed employers added 431,000 jobs last month. That was slightly below economists’ expectations for 477,500, but the report also revised earlier months’ data to reflect more strength. The report showed that worker raises increased last month, but at a slower rate than overall inflation. However, the unemployment rate rose to 3.6% from 3.7%.
“This report was solid,” said Brian Jacobsen (senior investment strategist at Allspring Global Investments).
” You can see that the concerns about COVID are fading. People are less likely to work remotely. Fewer people are saying they can’t work due to the pandemic.”
A separate report showed that U.S. manufacturing is continuing to grow, though at a slower rate than in February.
A strong economy and jobs market gives the Federal Reserve more flexibility to raise interest rates quickly to combat the high inflation in the country. The Fed has already raised its key overnight rate once, the first such increase since 2018. Traders increased their odds that the Fed would raise rates at its next meeting by twice the usual amount following Friday’s jobs report.
Such expectations drive shorter-term Treasury yields, and the two year yield jumped to 2. 45% from 2. 28% late Thursday.
The two-year yield again rose slightly above the 10-year yield, which was also climbing but not as quickly. The 10-year yield rose to 2. 42% from 2.33%. On Tuesday, the two-year yield briefly topped the 10-year yield for the first time since 2019, a potentially ominous sign.
Such a flip of the usual relationship between two- and 10-year yields has preceded many recessions in the past, though it hasn’t been a perfect predictor. Market watchers warn that the signal may not be as accurate this time due to distortions in yields due to extraordinary measures taken by the Federal Reserve and other central bank central banks to maintain low interest rates.
Shares of GameStop rose 4.2% to top $173 after it said it plans to split its stock, pending approval from shareholders for an increase in the number of its authorized shares. Splits can lower the stock’s price, which could make it more affordable for smaller investors.
GameStop’s stock has more than doubled since sitting at $78. 11 in mid-March. But it’s still well below the $483 peak reached in early 2021 amid the “meme stock” craze. Bands of smaller-pocketed investors joined forces to drive prices to levels considered irrational to many professional investors.
Other meme stock have also seen renewed strength in recent weeks. AMC Entertainment however fell 4.6% Friday.
In overseas markets, European stocks were modestly higher despite a report showing consumer prices in the 19 countries that use the euro currency rose by an annual rate of 7.5% in March, the fifth straight monthly record.
France’s CAC 40 rose 0.3%, Germany’s DAX returned 0.2% and the FTSE 100 in London added 0.3%.
Oil and gas prices had already been rising because of increasing demand from economies recovering from the depths of the COVID-19 pandemic. They rose after Russia invaded Ukraine, a major oil- and gas producer. This was due to fears that sanctions and export restrictions might crimp supplies.
Crude prices slipped modestly on Friday, with a a barrel of U.S. oil dipping 0.4% to $99.91. Early last month, when disruptions to crude supplies were at their height, it briefly touched $130.
Brent crude, the international standard, fell 0.3% to $104. 44 per barrel. Stocks were mixed in Asia.
The Nikkei 225 fell 0.6% after the Bank of Japan’s closely watched quarterly gauge of business sector sentiment,the “tankan,” showed the benchmark indicator for large manufacturers dropped for the first time in seven quarters.
South Korea’s Kospi dropped 0.6% while Shanghai stocks rose 0.9%.
Rising COVID-19 cases in China are adding to the worries of a regional slowdown. The lockdown in Shanghai entered its second phase with extended restrictions. However, restrictions were lifted in Jilin which was hard hit.
AP Business Writer Yuri Kageyama contributed.
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