Wall Street sinks after stunning jobs growth raises questions about Fed

By Lewis Krauskopf, Shreyashi Sanyal and Johann M Cherian

(Reuters) – Major U.S. stock indexes fell in choppy trading on Friday after surprisingly strong jobs data sparked concerns about aggressive Federal Reserve action, while investors digested a mixed bag of megacap company earnings reports.

The was still set to end the week with gains and was not far from five-month highs, while the Nasdaq was on pace for its fifth straight weekly rise.

U.S. job growth accelerated sharply in January, with nonfarm payrolls surging by 517,000 jobs, well above an estimate of 185,000. The unemployment rate hit a more than 53-1/2-year low of 3.4%.

In another sign of economic strength, U.S. services industry activity rebounded strongly in January.

Investors have been balancing hopeful signs that the economy could avoid a feared recession against concerns about how long the Fed will keep interest rates high to rein in inflation. The S&P 500 gained earlier this week after more dovish-than-expected comments from Fed Chair Jerome Powell, who acknowledged progress in the fight against inflation.

The jobs report “was an incredible surprise and it raises a lot of questions about what the Fed is going to do next,” said Kristina Hooper, chief global market strategist at Invesco. “What I think is causing some of the volatility is markets trying to make sense of how the Fed will perceive this.”

The fell 132.16 points, or 0.39%, to 33,921.78, the S&P 500 lost 37.88 points, or 0.91%, to 4,141.88 and the dropped 152.08 points, or 1.25%, to 12,048.74.

Wall Street’s main indexes have had a solid start to the year as tech and other stocks that struggled last year have rebounded, fueled by hopes that the Fed’s rate hikes would soon end and the economy might be able to navigate a soft landing.

On Friday, investors were also digesting another heavy batch of corporate results.

Shares of Apple (NASDAQ:), the largest U.S. company by market value, were up 3%. The company forecast that revenue would fall for a second quarter in a row but that iPhone sales were likely to improve as production had returned to normal in China.

Shares of Amazon (NASDAQ:) slumped more than 7% as the company said operating profit could fall to zero in the current quarter as savings from layoffs do not make up for the financial impact of consumers and cloud customers clamping down on spending.

Alphabet (NASDAQ:) shares shed over 2% after the Google parent posted fourth-quarter profit and sales short of Wall Street expectations.

In other corporate news, Ford Motor (NYSE:) shares slid over 7% after the automaker predicted a difficult year ahead.

Declining issues outnumbered advancing ones on the NYSE by a 2.69-to-1 ratio; on Nasdaq, a 1.55-to-1 ratio favored decliners.

The S&P 500 posted 15 new 52-week highs and one new low; the Nasdaq Composite recorded 103 new highs and 10 new lows.

Published at Fri, 03 Feb 2023 19:52:39 -0800