Stocks mixed, yields fly as jobs data raises rate outlook

Wall Street closed out a mostly upbeat week for stocks Friday with a mixed finish for the major indexes and a surge in Treasury yields after a blowout U.S. jobs report raised investors’ expectations that the Federal Reserve may soon start raising interest rates sharply.

The S&P 500 settled for a 0.5 percent gain after swinging between a 0.6 percent drop and a 1.4 percent increase. The Dow Jones Industrial Average slipped 0.1 percent after a last-minute burst of selling. The Nasdaq composite rose 1.6 percent. The three indexes posted a weekly gain for the second week in a row.

The latest monthly jobs data was a key focus for investors. The Labor Department said employers added 467,000 jobs last month, triple economists’ forecasts. Some economists were even expecting a loss of jobs amid January’s surge in coronavirus infections because of the omicron variant.

The stronger-than-expected data seems to lock in the Fed’s pivot toward fighting inflation by raising rates and making other moves that would ultimately act as a drag on markets. A 13.5 percent gain for online retail giant Amazon after the company delivered a strong earnings report helped lift the S&P 500, even though more stocks fell than rose in the benchmark index.

“Until you get a more set-instone picture for what tightening will be from the Fed, you should expect volatility to be similar to where we’ve been the last two weeks,” said Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth.

The S&P 500 rose 23.09 points to 4,500.53, while the Dow slipped 21.42 points to 35,089.74. The Nasdaq gained 219.19 points to 14,098.01, while the smaller stocks in the Russell 2000 rose 11.33 points, or 0.6%, to 2,002.36.

Treasury yields leaped immediately following the jobs report’s release, tracking forecasts that the Fed will hike short-term interest rates more aggressively than earlier expected. The two-year yield, which tends to move with expectations for the Fed’s actions, jumped to its highest level since the start of the pandemic and is more than double what it was two months ago.

The wide expectation is for the Fed to raise short-term rates next month off their record low of nearly zero, with the only question by how much. Friday’s jobs report has investors now pricing in a nearly 32.7% probability of an increase of 0.50 percentage points, instead of the traditional 0.25 points. That’s more than double the probability that Wall Street foresaw a day earlier, according to CME Group.

Any increase would mark an abrupt turnaround from much of the last two years, when ultra-low rates helped prices surge for everything from stocks to cryptocurrencies. Bonds paying more in interest would mean investors feel less need to reach for such risky things for returns.