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NEW YORK (AP) — Stocks teetered between modest gains and modest losses as Wall Street worked out how to respond to surprisingly strong data. US job market Posted on Friday.
The S&P 500 was down 0.4% in afternoon trade after turning 0.3% higher from a 0.9% loss. On the bright side, despite fears of a possible recession, employers hired far more workers than expected last month. However, the hotter the economy gets, the more likely the Fed will continue to raise rates aggressively to fight inflation.
Treasury yields soared immediately after the jobs data, underscoring expectations for a rate hike by the Federal Reserve, but then retreated. The two-year U.S. Treasury yield soared to 3.15% from 3.03% late Thursday, but then retreated to 3.11%.
The Nasdaq Composite fell 0.5% after falling to a gain of 0.4% from 1.2% in early trade. Technology and other high-growth companies that make up a large portion of the index have recently been among the most vulnerable to rising interest rates.
The Dow Jones Industrial Average fell 72 points, or 0.2%, to 31,311, recovering some losses from a 172-point loss.
The Fed has raised its key overnight interest rate three times this year, and the hikes are getting bigger. Last month, it raised interest rates by the most since 1994, by three-quarters of a percentage point to a range of 1.50% to 1.75%. As recently as March, it was almost zero.
By raising borrowing costs, the Fed has slowed some areas of the economy. The housing market in particular cooled as mortgage rates rose due to the Federal Reserve’s actions.Other parts of the economy also have showing signs of malaisewhile consumer confidence plummeted as they battled the highest inflation in four years.
The hope on Wall Street is that recent mixed economic data can persuade the Fed to relax when it comes to raising interest rates. An easing of the surge in oil and other commodity prices this week helped bolster those hopes. But Friday’s jobs report may have weakened them.
High interest rates are designed to slow the economy, and the Fed’s intention is to do so enough to keep inflation down. That’s a big departure from policy during the pandemic, which was to keep interest rates low to support economic growth. The danger is that rate hikes are a notoriously blunt tool, with a long lag time before their full effect is seen, risking a recession if the Fed moves too aggressively.
“You can’t just raise interest rates and shrink your balance sheet without doing the opposite of what you were doing,” said Jerry Braakman, chief investment officer at First American Trust. “When you do the opposite, you It can be expected to do the opposite as well.”
Other central banks around the world are also raising interest rates and scrapping emergency plans to shore up financial markets early in the pandemic.
A closely watched signal in the U.S. bond market continued to warn of a possible recession. The yield on the two-year U.S. Treasury note surpassed that on the 10-year U.S. Treasury note this week and was unchanged on Friday. This is a relatively rare occurrence, and some see it as a precursor to a recession within a year or two. However, other warning signs in the bond market focusing on short-term yields have not flashed.
Even if the Fed can accomplish the delicate task of keeping inflation in check and averting a recession, higher interest rates will push down the prices of stocks, bonds, cryptocurrencies and various investments.
After Friday’s jobs report, traders were widely betting that the Federal Reserve would raise its short-term interest rate target by at least three-quarters of a percentage point at its meeting later this month, according to CME Group data. This will match the big move in June.
A handful of traders are even betting on a full percentage point gain. A week ago, no one predicted such a big move, with some traders seeing half the gains as the most likely scenario.
In overseas markets, stocks were mixed or slightly higher.
Tokyo’s main stock market index follows suit assassinate Former Japanese Prime Minister Shinzo Abe, but stayed in positive territory for the day. Abe, 67, was shot and killed Friday during a campaign speech in western Japan.
The Nikkei 225 edged up 0.1% after gaining more than 1% before the attack. Abe oversaw an effort to revive Japan’s economy known as “Abenomics” and stepped down as prime minister in 2020.
On Wall Street, GameStop shares fell 6.5% after the retailer abruptly ousted its chief financial officer. A day earlier, the stock that rocked Wall Street last year climbed 15.1% after announcing a 4-for-1 stock split, after well above what the pros said was reasonable.
The winner was Costco Wholesale, which said its store sales rose 20% last month from a year earlier, and shares rose 1%.
Associated Press business writer Joe McDonald contributed.
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