By William Watts and Barbara Kollmeyer
U.S. stocks fell sharply Friday, leaving major indexes with weekly losses, after better-than-expected May payrolls data reinforced expectations for a series of interest-rate rises by the Federal Reserve in coming months.
The technology sector led the way south as Treasury yields rose and a report that Tesla Inc. may be considering job cuts amid CEO Elon Musk’s misgivings about the economic outlook.
How are stocks trading?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.05% fell 348.58 points, or 1%, to end at 32,899.70, dragging the blue-chip gauge to a 0.9% weekly fall.
The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.03% dropped 68.28 points, or 1.6%, to close at 4,108.54, leaving it with a 1.2% weekly loss.
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.07% shed 304.16 points, or 2.5%, finishing at 12,012.73. The tech-heavy index, which fell into a bear market earlier this year, suffered a 1% weekly decline.
What’s driving markets?
May nonfarm payrolls rose a bigger-than-expected 390,000 data, versus expectations for a gain of 328,000, from an upwardly revised gain of 436,000 in April. The unemployment rate was unchanged in May at 3.6% and average hourly earnings rose 0.3% to $31.95 in May.
While wage gains slowed slightly to 5.2% year over year from 5.5%, they likely remain “too strong for policy makers to take their foot off the brake,” said Matt Peron, director of research at Janus Henderson Investors.
“While it does show evidence of ‘peaking’ inflation, it is still an uncomfortably high number. As a result, rate hikes are still going to be a headwind for markets to contend with until we see further deceleration,” he said in emailed comments.
Investors didn’t appear to be in the mood to welcome a Goldilocks set of jobs data, analysts said.
“The jobs release sent affirmation to investors that the recovery continues in full force. The flip side to that coin, however, is that inflation will continue to be an issue due to strong demand from consumers, wage pressures, and rising commodity prices,” said Peter Essele, head of portfolio management at Commonwealth Financial Network.
Those worries were on display in the bond market as inflation-wary investors sold Treasurys across the board, he said. The yield on the 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +1.48% rose 5 basis points to 2.961%. Yields and debt prices move opposite each other.
“The second half of 2022 is going to be a roller-coaster ride for investors unless the Fed is able to bring inflation under control without a hard landing,” Essele said. “Most investors seem to be wagering on a crash-and-burn scenario at this point as recessionary fears abound, and equity markets fail to develop any sort of positive momentum.”
In other data, the Institute for Supply Management said its services index fell to 55.9% in May from 57.1% a month earlier.
Another focus for markets on Friday was a report that Musk, according to Reuters, sent an email to executives ordering them to “pause all global hiring,” and that employee head count needed to be reduced by 10%. He also reportedly said he had a “super bad feeling” about the economy.