U.S. stocks closed mixed after stumbling between small gains and losses on Friday, as stronger-than-expected jobs data prompted investors to recalibrate expectations for when the Federal Reserve will pause its rate hike campaign.
The Labor Department’s monthly jobs report for November showed that payrolls grew by 263,000, higher than forecast, while the unemployment rate remained at 3.7%. Bloomberg expected a print run of 200,000 for the month.
The S&P 500 (^GSPC) fell 0.1%, while the Dow Jones Industrial Average (^DJI) was up by that margin. The technology-heavy Nasdaq Composite (^IXIC) fell 0.2%. All three major sessions were out of session by more than 1[ads1]% immediately after the release.
“Another strong jobs report and strong wage growth confirm that the Fed’s job is not done yet, Lazard Asset Management head of US Equity Ron Temple said in a note. the level of terminal interest rates, and how long the Fed will keep interest rates there.”
In commodity markets, the EU gave the green light to a price ceiling of $60 for Russian oil, dampening a rise in prices. West Texas Intermediate futures (WTI) closed lower at around $80 a barrel, but were up 5% for the week.
Friday’s move comes after a mostly upbeat week for equity markets, with sentiment lifted by Federal Reserve Chairman Jerome Powell’s indication of a moderation in the pace of interest rate hikes, and China relaxing some COVID lockdowns after jitters over restrictive virus controls.
But the jobs report appeared to throw a wrench in the market’s plans for weekly gains and a so-called Santa Claus Rally, as stocks have tended to jump into the holiday season. The higher-than-expected jobs numbers, as well as continued strong wage growth, provided further signals that the Fed would continue its campaign to raise interest rates even as it slows its pace.
For the month, stocks had a weak start, with a mixed close across the major averages on Thursday, the first day of December. However, according to Carson Group’s Ryan Detrickno month is more likely to see the S&P 500 end with a gain than December: The benchmark has been up for the month 75% of the time since 1950.
Treasury Secretary Janet Yellen said at a conference in New York earlier this week that the jobs report is the most important data point — in addition to inflation data — that policymakers follow when making monetary decisions as they take steps to restore price stability.
“The U.S. labor market is starting to show tentative signs of softening, but only at the margins,” DataTrek’s Nicholas Colas said in an emailed newsletter Friday, calling the jobs report an “important data point” to watch.
Central bankers have been working to ease the tightness in the labor market, driven by too many vacancies, which has put upward pressure on wages and contributed to rising prices. But many worry that the labor market momentum that has encouraged officials to push ahead with aggressive rate hikes will cause them to overshoot and tip the U.S. economy into recession.
In its 2023 economic outlook earlier this year, Bank of America’s Michael Gapen warned that momentum in the labor market could see the federal funds rate go as high as 6%, although the bank’s forecast calls for a terminal rate of 5.00-5.25% by May.
While job numbers have so far reflected the resilience of the US employment picture, economists expect job growth to trend downward as the effects of higher interest rates linger. BofA expects the unemployment rate to reach 5.5% in 2023, while Morgan Stanley expects 4.3% and Goldman Sachs predicts an increase of half a percentage point to 4.2%.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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