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Stocks fell on Friday after the government reported a big jump in hiring last month, defying expectations for a slowdown and forcing investors to weigh the surprisingly strong labor market against their hopes that the fight against inflation could be approaching an end.
Friday’s trading reflected the push-and-pull in markets in recent months, turbulence that’s come amid competing narratives about the prospects for inflation, growth and interest rates. The S&P 500 initially fell after the jobs numbers were released, then regained almost all the lost ground later in the morning, before tumbling again in the afternoon.
The index ended the day down 1 percent, while the tech-heavy Nasdaq composite slid 1.6 percent. Despite Friday’s losses, the S&P 500 gained 1.6 percent for the week, while the Nasdaq composite gained 3.3 percent for the week.
The Federal Reserve is trying to tamp down inflation by raising interest rates, without going so far that it pushes the economy into a recession. Higher rates raise borrowing costs for consumers and companies, which investors have seen as bad for stocks. Fed policymakers have said they would be comfortable pausing rate increases only when they could see clear signs that price pressures are waning as a result of the economy cooling.
But the jobs data released Friday showed a still-hot labor market, with U.S. employers adding 517,000 positions on a seasonally adjusted basis, an increase from 260,000 in December and more than twice what economists had expected. The unemployment rate fell to 3.4 percent, its lowest level since 1969.
“In order for inflation to come all the way down, one of the things that needs to happen is the labor market needs to weaken,” said Edward Moya, senior market analyst at OANDA.
While the employment numbers are a testament to the continued strength of the economy, the labor market has also been stoking inflation. Demand for workers has pushed up wage growth, and, in turn, increased prices for consumers. In January, average hourly earnings rose 4.4 percent from a year ago, a slowdown in the pace of gains from December, but it was still higher than what the Fed had suggested it would be comfortable with.
The government also released data this week showing that the number of posted jobs per available unemployed worker — a measure that policymakers have been watching closely — rose again in December.
“These strong job numbers, while very good for the economy, adds to this concern that inflation and higher prices are going to continue to be an issue,” said Eric Beiley, executive managing director of Steward Partners Global Advisory.
An ideal situation for stock investors would be a strong labor market that isn’t accompanied by rapidly rising prices. That would spur consumer spending and bolster corporate profits.
The broad market was also weighed down Friday by drops in shares of several large technology companies, after their earnings reports earlier in the week. Amazon tumbled 8.4 percent, after it reported on Thursday almost no profit for the latest quarter. Alphabet dropped 2.8 percent after reporting its fourth consecutive decline in profit amid a slowdown in digital advertising.
Meta, which had its biggest rally in almost 10 years on Thursday, the day after the company beat analysts’ expectations for revenue in its latest quarterly earnings report, fell about 1.2 percent on Friday. Shares of Apple were higher, up about 2.4 percent.
Beyond the stock market, trading in government bond yields showed investors adjusting their expectations for interest rates. The yield on the 10-year Treasury note, a benchmark for mortgages and many other types of loans, rose to 3.53 percent, retracing some of this year’s decline. And the yield on the two-year note, which closely tracks expectations for Fed policy, jumped to 4.30 percent.