US stocks fell early Friday as the government’s key employment report showed the labor market grew at a slower pace in September.
The US economy added 263,000 jobs last month as the unemployment rate fell to 3.5%. Economists expected a wage gain of 255,000 and that unemployment would remain at 3.7%.
Futures tied to the S&P 500 (^GSPC) fell 0.7%, while futures on the Dow Jones Industrial Average (^DJI) fell more than 100 points, or 0.4%. Nasdaq Composite (^IXIC) futures led the way down, falling 1.3%. Meanwhile, government yields rose in the bond market, with the benchmark 10-year bond up 7 basis points to 3.90% and the 2-year yield 8% to 4.32%
Shares closed the previous trade lower for the second day in a row after a two-day rally faltered. Still, the major averages remain well off the 2022 lows and are about to end the week on a positive note.
Investors are betting that signs of a cooling labor market will force Federal Reserve policymakers to change course on their aggressive rate hike path, especially after a series of weaker economic releases showed a drop in manufacturing activity and fewer job vacancies. But many Wall Street strategists have argued that hopes of an imminent turning point are premature.
In recent research notes, JPMorgan analysts said equity bulls would need a monthly payrolls print as low as 1[ads1]00,000 to see the market change its Fed expectations, while analysts at Bank of America said a pivot won’t happen “until payrolls sizzle.”
“The Fed’s job is still far from over: expect hikes to continue until negative payrolls are almost in hand,” noted a team at BofA led by fixed income research strategist Meghan Swiber.
Moreover, Federal Reserve officials themselves have delivered clear messages in recent weeks that there are so far no plans to back away from aggressive policy intervention.
“We have a long way to go,” Chicago Federal Reserve Bank President Charles Evans said on Thursday, indicating that the benchmark interest rate is likely to be at 4.5% to 4.75% by the spring of 2023. “”Inflation is high right now and we need a more restrictive design of monetary policy.”
US crude oil futures continued this week’s rise on the heels of the steepest OPEC+ production cut since 2020. DataTrek Research noted that West Texas Intermediate (WTI) crude at more than $85 a barrel will extend positive energy inflation trends until at least the start of 2023. The firm also noted that oil prices are a ” understated pivot” for the Federal Reserve and the market’s expectations of short-term economic growth. WTI futures were trading around $89 a barrel early Friday.
Elsewhere in the markets, chipmakers were under pressure on Friday morning after Advanced Micro Devices (AMD) lowered its third-quarter earnings guidance and warned of “significant” inventory corrections across the PC supply chain. Shares fell about 6% premarket. Also weighing on the sector was Samsung reporting its first earnings decline since 2019, another sign of a troubled chip market.
Levi Strauss ( LEVI ) was also a mover on Friday after the retailer cut its guidance, citing headwinds from a stronger dollar, slowing consumer demand and persistent supply chain issues. The stock was down around 5% in pre-hours trading.
Meanwhile, shares of DraftKing ( DKING ) rose nearly 8% after Bloomberg News reported Thursday that ESPN is nearing a major new partnership deal with the sports betting company, citing sources familiar with the deal.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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