(Bloomberg) — U.S. stocks retreated to session lows amid a selloff in big tech shares as investors assessed a mixed hiring report for clues on the strength of the economy and the Federal Reserve’s next policy moves. Treasuries fell across the board.
The S&P 500 extended a weekly decline sparked by concern the Fed will be forced to raise rates faster than anticipated. The tech-heavy Nasdaq 100 dropped more than 1% Friday as yields extended their weekly climb. The December jobs data showed employers added fewer staff than expected but that wages rose more than forecast. Overnight index swaps are pricing in about an 88% chance of an interest rate hike that month, according to data compiled by Bloomberg.
“Overall, this print had mixed messaging,” said Anu Gaggar, global investment strategist for Commnowealth Financial Network. But “the combination of the decline in unemployment rate to below Fed’s long-term equilibrium level and acceleration in wage growth brings the Fed’s March meeting in play for the first-rate hike of this cycle.”
Treasury yields have climbed across the board, with the five-year rate rising to pre-pandemic levels, crossing above 1.50%. The two-year rate pushed to 0.89%, heading for the biggest weekly spike since October 2019.
An overtly hawkish stance from the Fed has roiled financial markets at the start of a new year, with investors reassessing how to price assets in an environment of rising interest rates. The removal of crisis-era accommodation marks a shift not seen in at least three years, a time that also saw a spike in volatility.
“The wage number is the story here. The Fed simply cannot ignore that,” said Steve Chiavarone, portfolio manager and head of multi-asset solutions at Federated Hermes.
Comments by regional Fed presidents provided some additional insight Thursday as traders attempted to predict a possible schedule for tightening. St. Louis Fed President James Bullard, a more hawkish policy maker, said in a speech the central bank could raise its target interest rate as soon as March. Meanwhile, San Francisco Fed President Mary Daly said at a virtual event that trimming the Fed balance sheet would come after normalizing the Fed funds rate.
Europe’s equity benchmark traded lower Friday, on track to open the year with a down week. Consumer prices in the euro area jumped 5% from a year earlier in December, adding pressure on the European Central Bank to join a growing legion of central banks from the Fed to the Bank of England in tightening monetary conditions. The euro advanced after the report, only to give up the gains later.
What to watch this week:
- ECB’s Schnabel speaks on a panel Saturday
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.6% as of 11:12 a.m. New York time
- The Nasdaq 100 fell 1.2%
- The Dow Jones Industrial Average fell 0.2%
- The Stoxx Europe 600 fell 0.6%
- The MSCI World index fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index fell 0.4%
- The euro rose 0.4% to $1.1346
- The British pound rose 0.3% to $1.3566
- The Japanese yen rose 0.2% to 115.64 per dollar
Bonds
- The yield on 10-year Treasuries advanced five basis points to 1.77%
- Germany’s 10-year yield advanced two basis points to -0.05%
- Britain’s 10-year yield advanced one basis point to 1.17%
Commodities
- West Texas Intermediate crude fell 0.7% to $78.90 a barrel
- Gold futures were little changed
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