Stocks fell on Friday Blockbuster Report on Hiring In July that presented both good and bad news for Wall Street.
The S&P 500 was down 0.2% after recovering from an earlier loss of 1.1%. US employers added hundreds of thousands more jobs than expected last month, suggesting the economy may not be in recession as feared. But better-than-expected hiring data also dampened investor expectations that high inflation could peak, meaning the Federal Reserve may not abandon its aggressive rate hikes to counter it.
“After a few weeks of strong performance, ‘safe’ and ‘risky’ assets have generally sold out following strong US payroll data today,” James Reilly, assistant economist at Capital Economics, said in a report. “We expect this to continue through the rest of 2022.”
is fed raised its benchmark rate twice A 0.75 percentage point increase this year, the biggest increase since the early 1990s, as well as implementing two other rate hikes this year.
Tech stocks and other high-growth companies once again bore the brunt of losses and the Nasdaq Composite fell .5% amid rising rate concerns.
In the bond market, Treasury yields rose as traders scrambled to bet on big hikes coming out of the Fed’s meeting next month. Such hikes hurt investment prices in the near term, and they take down the risk of a recession even more because they tend to slow down the economy by design.
In addition to the country’s strong recruitment, wage hikes for workers also unexpectedly accelerated last month. This raised fears that inflation would become more embedded in the economy. Higher wages can cause companies to raise prices for their products to maintain profits, leading to what some economists call a “wage-price spiral”.
Bill Adams, chief economist at Comerica Bank, said in a research note, “With the reduction in the unemployment rate in July and strong increases in payrolls, there is little reason for the Fed to hold back on raising interest rates in the near-term.”
Job strength exaggerated?
To be sure, some market watchers pointed to numbers within Friday’s employment report, saying the jobs market may not be as strong as the overall numbers imply. For example, the number of people with multiple jobs increased by more than half a million, said Brian Jacobsen, senior investment strategist at AllSpring Global Investments.
“It was mostly from people who already have a full-time job and then another part-time job,” he said. “Perhaps it’s more superficially impressive than quite impressive.”
Wall Street is approaching the best month for stocks since the end of 2020, a rally driven mostly by falling yields in the bond market. The expectation on Wall Street was that the economy was slowing enough for the Fed to reduce its rate hikes.
Higher mortgage rates had cut into the housing industry, in particular, after the Fed raised its short-term rates four times this year. The last two increases were more than triple the normal size, and the Fed has raised its benchmark overnight rate from nearly zero to about 2.25 percentage points, or 225 basis points, as Wall Street said.
“The strength of the labor market with the Fed already tightening rates by 250 basis points this year clearly shows the Fed has more work to do,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.