Shares fell on Friday after a wild week in which the market recovered and then collapsed in quick succession as investors weighed in on the implications of the latest update on the US job market.
After falling nearly 2 percent in early trading, the S&P 500 regained some ground and fell about half a percent. The index was down 3.6 percent on Thursday after rallying 3 percent on Wednesday, and is now flirting with its fifth consecutive weekly decline.
Wall Street’s concern this year has been how quickly the Federal Reserve will withdraw its support from the economy by raising interest rates and reducing its bond holdings. The measures make risky assets less attractive, ending years of low interest rates and policies designed to keep cash flowing through the financial system, both of which had contributed to a massive rally in equities.
On Friday, the Labor Department reported that employers added 428,000 jobs in April, while average hourly wages are up 5.5 percent from a year ago. While the report showed that hiring remains resilient, economists have said the strong labor market and wage growth are providing incentives for the central bank to raise interest rates more aggressively.
A particular concern is that rising wages could fuel inflation as companies pass the higher labor costs on to customers. That, in turn, could push workers to demand even higher wages, which could set off an upward spiral. Data released Friday also showed that the labor force contracted unexpectedly in April, a phenomenon that could continue to exacerbate labor shortages.
The Fed hiked interest rates by half a percentage point on Wednesday, the largest increase since 2000. Speaking at a news conference that day, Fed chairman Jerome H. Powell said the record number of job openings relative to the number of unemployed workers was one reason why policymakers are pushing back. had become more aggressive in recent months.
“You see that the labor market is out of balance; you can see there is a labor shortage,” said Mr. powell. In April, he called the job market ‘unsustainably hot’.
The report reinforced expectations that the Fed must remain on track to raise interest rates quickly, said John Canavan, a chief analyst at Oxford Economics. But trading on Friday was volatile, with stocks moving even briefly into positive territory as investors grappled with the prospects for the Fed.
“There was pressure in the market early this morning after payrolls grew faster than expected, which will keep the Fed on course for 50 basis point rate hikes for at least the next two meetings,” he said. “The employment report hasn’t changed expectations about the Fed from where they were before publication.”
In the bond market, 10-year Treasury yields, indicative of investor expectations about interest rates, rose to 3.07 percent, below the all-day high.
As they have done all year, technology stocks underperformed the broader market on Friday. The Nasdaq composite fell 0.7 percent and is now down nearly 22 percent for the year so far — a much sharper drop than the S&P 500’s nearly 14 percent drop over that period.
Major tech companies reported mixed results for the start of the year in April, quickly losing appeal to investors after two years of blockbuster performance. The pullback this year came after the Nasdaq rose 81 percent at the end of 2021 from the end of 2018.
“If you look at big technology, they were priced below the expectation that things would be perfect forever. This quarter is questioning that,” said David Bahnsen, the chief investment officer of the Bahnsen Group, an asset manager. appreciation as declining questions about the seeming perfection of their company.
