The S&P 500 fell in early trading, then rose before moving into a tight range for the rest of the day. It rose 8.96 points, or 0.2%, to 4090.46. But the index still turned in a 1.1% weekly decline, its worst weekly performance ever in 2023.
The market was digesting last week’s news, which included a 0.25 point hike from the Federal Reserve and a surprisingly strong jobs report. With fourth-quarter earnings season more than halfway through, fewer companies are beating Wall Street profit expectations above normal. Ride-hailing company Lyft Inc. Shares fell $5.91, or 36%, to $10.31 on Friday.
“The market came close to pricing in a flawless landing,” said Bill Merz, head of capital markets research at US Bank Wealth Management, “where inflation recedes and the economy still grows.” “We look at that somewhat out of caution.”
Some investors said this week that the February 3 jobs report raised the possibility that the tightening period could be longer than they expected. The US added 517,000 jobs last month, more than analysts expected, and the unemployment rate of 3.4% was the lowest since 1969.
A strong jobs report is usually good news, but in the tumultuous world of Wall Street, it can be bad news for stocks. A strong labor market could encourage the Fed to keep rates higher longer in a bid to cushion the economy.
Fed Chair Jerome Powell said Tuesday that the process of reducing inflation to the central bank’s target of 2% “is likely to take a long time.” The market rallied on Tuesday following his speech but has since declined.
The Dow Jones Industrial Average rose 169.39 points, or 0.5%, to 33869.27. The Nasdaq Composite closed down 71.46 points, or 0.6%, at 11718.12. This is the first time since December that all the three indices ended the week at a lower level. The Nasdaq snapped its five-week winning streak with its 2.4% weekly decline.
Shares started the year strong. All three indexes, including an 11% gain in the Nasdaq, ended January higher as investors expected the Fed to end its campaign to raise interest rates and eventually lower them. This week’s moves signaled investor skepticism that the Fed can reduce inflation without slowing the economy.
Derivatives reflect changes in market expectations. Investors who had bet on a Fed rate cut this year paid those bets back.
“Sentiment has turned a bit sour,” said Sebastian Mackay, a multiset fund manager at Invesco. ,
Investors will soon know more about the health of consumers and the direction of interest rates. Consumer-price data for January is expected next week, while The Coca-Cola Co., Marriott International and Kraft Heinz are among companies scheduled to report quarterly results.
“The market is jittery about confirmation from the CPI report that the Fed needs to do more before it eases off the gas pedal,” said Keith Buchanan, portfolio manager at Global Investments.
So far this earnings season, 58 companies have issued a negative profit outlook for the first quarter, according to FactSet. Only 13 issued a forecast that topped analysts’ expectations. Nearly 70% of S&P 500 companies reported results.
The yield on the benchmark 10-year Treasury note rose to 3.743% from 3.682% the previous day.
Oil prices rose after Russia announced plans to cut production by 500,000 barrels per day starting in March. Global crude benchmark Brent was trading up 2.2% at $86.39 a barrel.
“The reopening of China as well as lower Russian production should further tighten the oil market in the coming quarters,” said UBS commodities analyst Giovanni Staunovo.
Abroad, the pan-continental Stocks Europe 600 slipped 1%. London-based bank Standard Chartered declined 5% after First Abu Dhabi Bank denied a report that it was still considering a takeover. German sportswear company adidas has warned it could hit losses this year as it ends its partnership with rapper Kanye West.
In Asia, major benchmarks were mixed. The Shanghai Composite index retreated 0.3% and Hong Kong’s Hang Seng index fell 2%. Japan’s Nikkei 225 rose 0.3%.