Stocks drop, then soar after Wall Street rethinks jobs data

Wall Street rallied in a whipsaw Friday and erased its morning losses after looking deeper into the nuances of a surprisingly strong report on the U.S. job market.

The Standard & Poor’s 500 climbed 1.2% after charging back from an earlier drop of 0.9%. The Dow Jones industrial average rose 288 points, or 0.9%, and the Nasdaq composite flipped to a gain of 1.6%.

Stocks initially tumbled after a report said U.S. employers added nearly twice as many jobs last month as economists expected.

The strength raised worries that a too-hot job market could keep upward pressure on inflation, which in turn could push the Federal Reserve to keep interest rates higher than investors want.

Treasury yields leaped after the release of the jobs report, and the yield on the 10-year Treasury again soared to its highest level since 2007. It was at 4.78%, up from 4.72% late Thursday.

Wall Street hates high interest rates because they knock down prices for all kinds of investments. And even though the job market has been powering through the Fed’s pulling its main interest rate to the highest level since 2001, high rates work to extinguish high inflation by slowing the entire economy. That raises the risk of a recession down the road.

But Treasury yields pared their gains as the morning progressed, particularly shorter-term ones, as economists pointed to some more encouraging data within the jobs report.

The two-year Treasury yield more closely tracks expectations for action by the Fed, and it quickly soared from 5.04% just before the release of the jobs report to 5.20% shortly afterward. It then pulled back to 5.08%.

Among the potentially encouraging signals for the Fed: Workers’ average wages rose at a slower rate in September than economists expected. While that’s discouraging for workers trying to keep up with inflation, it could remove some inclination by companies to keep raising prices for their products.

The Fed should be focusing on such moderate wage gains, rather than the growth in jobs, said Brian Jacobsen, chief economist at Annex Wealth Management.

“The labor market isn’t overheating, it’s still healing,” he said.

Average hourly earnings rose at the slowest rate, on a year-over-year basis, since June 2021.

“Like most reports, [the] Fed will find things to like and dislike here,” according to Andrew Patterson, senior economist at Vanguard.

That raises the stakes for upcoming reports next week on inflation at both the consumer and wholesale levels. They’re the next huge data points coming before the Fed’s next meeting on interest rates, which ends Nov. 1.

Some economists said the Fed may also not need to do as much with its overnight interest rate after financial markets have already done some of its work for it. The 10-year Treasury is the centerpiece of the bond market, and it’s already leaped sharply from less than 3.50% during the summer and from just 0.50% early in the pandemic.

The higher 10-year yield raises rates for mortgages and all kinds of other loans, which can put the brakes on the economy and inflation.

A strong job market also carries some rewards for financial markets in the short term. It means the economy is still doing well despite high rates, which could support corporate profits.

The day’s whiplash for stocks meant the S&P 500 went from a loss of 0.9% to a gain of as much as 1.5% That swing of 2.4 percentage points was the S&P 500’s largest since March, when high interest rates triggered a crisis in the banking industry that sent financial markets around the world into turmoil.

Next week will see the unofficial start of earnings reporting season for the S&P 500, with Delta Air Lines, JPMorgan Chase and UnitedHealth Group among the big companies scheduled.

General Motors rose 1.9% after the United Auto Workers union said it would not expand its strikes against Detroit’s three automakers. The union said GM made a breakthrough concession on unionizing electric vehicle battery plants.

All told, the S&P 500 rose 50.31 points to 4,308.50. The Dow advanced 288.01 points to 33,407.58, and the Nasdaq jumped 211.51 points to 13,431.34.

Oil prices also swung several times through the day, continuing a choppy stretch. A barrel of benchmark U.S. crude rose 48 cents to settle at $82.79, while Brent crude, the international standard, rose 51 cents to $84.58.