NEW YORK — U.S. stocks are swinging betwen small gains and losses on Friday as Wall Street struggles with what to make of a surprisingly strong report on the U.S. jobs market.
The S&P 500 was 0.2% higher in morning trading after erasing an early loss of 0.9%. On the optimistic side, employers hired many more workers last month than expected despite worries about a possible recession. However, the hotter the economy remains, the more likely it is that the Federal Reserve will continue to raise interest rates sharply in its fight against inflation.
Underscoring the fears about rising rates, Treasury yields climbed immediately after the release of the jobs data. The yield on the two-year Treasury, which often moves with expectations for Fed action, jumped as high as 3.15% from 3.00%. But it moderated as the morning progressed, and its easing back to 3.06% coincided with a recovery for stocks.
The Nasdaq composite was 0.2% higher after recovering from an early loss of 1.2%. The technology and other high-growth companies that make up a big chunk of that index have been some of the most vulnerable to rising rates recently.
The Dow Jones Industrial Average was up 92 points, or 0.3%, at 31,476, as of 10:38 a.m. Eastern time. It came back from a morning loss of 172 points.
The Federal Reserve has already hiked its key overnight interest rate three times this year, and the increases have become increasingly aggressive. Last month it raised rates by the sharpest degree since 1994, by three-quarters of a percentage point to a range of 1.50% to 1.75%. It was at virtually zero as recently as March.
By making it more expensive to borrow, the Fed has already slowed some parts of the economy. The housing market has cooled in particular as mortgage rates rise in concert with Fed actions. Other parts of the economy have also shown signs of flagging, and confidence has fallen sharply among consumers as they contend with the highest inflation in four decades.
The hope on Wall Street had been that the recently mixed data on the economy could convince the Federal Reserve to take it easier on rate hikes. This week’s reprive from spiking prices for oil and other commodities helped strengthen such hopes. But Friday’s jobs report may have undercut them.
Higher interest rates slow the economy by design, and the Fed’s intent is to do so enough to force down inflation. The danger is that rates hikes are a famously blunt tool, with long lag times before their full effects are seen, and the Fed risks causing a recession if it acts too aggressively. Other central banks around the world are also raising interest rates and removing emergency plans put in place early in the pandemic to prop up financial markets.
Even if the Fed can pull off the delicate task of crushing inflation and avoiding a recession, higher interest rates push down on prices for stocks, bonds, cryptocurrencies and all kinds of investments in the meantime.
Following Friday’s jobs report, traders are universally betting the Fed will raise the target for its short-term interest rate by at least three-quarters of a percentage point at its meeting later this month, according to CME Group. That would match June’s massive move.
A small number of traders are even betting on an increase of a full percentage point. A week ago, no one was predicting that big a move, and some traders were thinking an increase of just half a percentage point was the most likely scenario.
In overseas markets, stocks were mixed or modestly higher.
Tokyo’s main stock market index ebbed following the assassination of former Japanese prime minister, Shinzo Abe, but stayed in positive territory for the day. Abe, 67, died after being shot during a campaign speech Friday in western Japan.
The Nikkei 225 edged up by 0.1% after being up by more than 1% before the attack. Abe oversaw an effort to jolt Japan’s economy dubbed “Abenomics,” and he stepped down as prime minister in 2020.
On Wall Street, shares of GameStop fell 3.7% after the retailer abruptly ousted its chief financial officer. A day earlier, the stock that shook Wall Street last year after soaring far beyond what professionals said was reasonable had climbed 15.1% after it announced a 4-for-1 stock split.