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Shares fall after disappointing job report

Investors do not seem sure what to think about these mixed messages.

Shares closed lower on Friday after the US government reported that only 199,000 jobs were added in December, significantly less than economists expected. The Dow fell around 5 points, ending the day flat after giving up previous wins.
The S&P 500 ended 0.4% and the Nasdaq fell 1% to end a choppy trading day. Both indices had opened the session higher.

Although the overall jobs were disappointing, the government also said that wages had risen 4.7% in the last 12 months. It can bode well for consumption, although it may also raise fears that the Federal Reserve will step up plans to raise interest rates to fight inflation.

“Wage growth is strong and unemployment is falling more than expected, putting the Fed on a more hawkish path with interest rate hikes,”[ads1]; said Yung-Yu Ma, investment strategist at BMO Wealth Management. “The economy is closer to full employment and the market is beginning to reconcile with the implications of that.”

The market fell on Wednesday after minutes from the Fed’s last meeting last month showed that some central bankers were becoming increasingly nervous about inflation.

Wall Street interpreted this as a sign that the Fed may raise short-term interest rates more aggressively this year than originally expected.

“Inflationary pressures are alive and well,” said Dec Mullarkey, CEO of Investment Strategy Research and Initiatives at SLC Management. “Today’s job report increases the possibility of an interest rate increase in March. These odds seemed remote at the end of last year.”

However, the number of mixed jobs could cause the Fed to only gradually raise interest rates this year. If that is the case, companies’ earnings growth should remain relatively strong, and the economy is likely to continue to show solid gains.

Nevertheless, the shares have a weak start in 2022 after having had healthy gains last year. The Dow was flat this week, but the other two major indices ended lower, with the S&P 500 down 1.8% and the Nasdaq already falling more than 4% this year.

However, bank shares rose on Friday and rose sharply for the week. Investors are betting that Fed rate hikes will be gradual enough not to hurt the demand for mortgages and other loans, and that higher interest rates will also make lending more profitable for financial institutions.

“We need to see how inflation figures come in,” said Rob Dishner, senior portfolio manager on the multi-sector fixed income team with Neuberger Berman.

In this way, the yield on the US 10-year government bond rose to 1.77% on Friday after the job report. This is the highest level since January 2020.

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