Wall Street ends sharply lower as jobs report cements rate hike regime

Today’s payroll report showed that the labor market remains quite vigorous which is exactly the opposite of what the market wanted for a strong resilient job market virtually guarantees continued Fed rate hikes.  There were about 5% more hires in September than forecast and to make matters worse, the unemployment rate, which everyone hoped would increase actually decreased to an almost historic low of 3.5 percent.  Thus all the indexes went screaming down and oddsmakers have now increased the chances of another ¾ point hike from 83% to 92 for a fourth consecutive such hike.  

The Dow fell 630, the Nasdaq 420.  It was yet another day of “a classic case of good news is bad news.”  The big fear today is that with all the tightening going on, once the unemployment rate does begin to rise, it will do so quickly and dramatically, thus bringing on recession. Now all eyes are on next week’s CPI report for another snapshot on inflation.  Despite the nosedive, the indexes all enjoyed net gains for the week after three straight weeks of losses.  Volume was a little below average at 11.1 billion. 

Fri  October 7, 2022  4:49 PM

Wall Street ends sharply lower as jobs report cements rate hike regime

By Herbert Lash, Shreyashi Sanyal and Ankika Biswas

DJ: 29,926.94  -346.93        NAS: 11,073.31  -75.33         S&P: 3,744.52  -38.76      10/6

DJ: 29.296.79  -630.15        NAS: 10,652.41  -420.91       S&P: 3,639.66  -104.86    10/7

Oct 7 (Reuters) - Wall Street fell sharply on Friday following a solid jobs report for September that increased the likelihood the Federal Reserve will barrel ahead with an interest rate hiking campaign many investors fear will push the U.S. economy into a recession.  The Labor Department reported the unemployment rate fell to 3.5%, lower than expectations of 3.7%, in an economy that continues to show resilience despite the Fed's efforts to bring down high inflation by weakening growth. read more  Nonfarm payrolls rose by 263,000 jobs, more than the 250,000 figure economists polled by Reuters had forecast. Money markets raised to 92% the probability of a fourth straight 75 basis-point rate hike when Fed policymakers meet on Nov. 1-2, up from 83.4% before the data. read more  The job gains, lower unemployment rate and continued healthy wage growth point to a labor market Fed officials will likely still see as keeping inflation too high. read more

In the latest of a steady stream of hawkish messages by policymakers, New York Fed President John Williams said more rate hikes were needed to tackle inflation in a process that will likely increase the number of people without jobs. read more  The data cemented another jumbo-sized, 75 basis-point rate hike in November as "the labor market is still way too hot for the Fed's comfort zone," said Bill Sterling, global strategist at GW&K Investment Management.  "This was a classic case of good news is bad news," he said. "The market took the good news of the robust labor market report and turned it into an ever-more vigilant Fed and therefore potentially higher risks of a recession next year."  One economist said the Fed should not be reassured by the tight labor market because when the unemployment rate begins to rise, it does so quickly and is a leading indicator of a recession.

"We haven't felt the full effects of the tightening," said Joseph LaVorgna, chief U.S. economist at SMBC Nikko Securities. "They're going to keep going until eventually this thing turns over, and when it turns over you won't be able to slow the momentum."  Next week's consumer price index will provide a key snapshot of where inflation stands.

Despite Friday's nosedive, a hefty two-day rally earlier in the week pushed the S&P 500, the Dow and the Nasdaq to post their first week of gains after three straight weeks of losses.

The Dow Jones Industrial Average (.DJI) closed down 630.15 points, or 2.11%, at 29,296.79, the S&P 500 (.SPX) lost 104.86 points, or 2.80%, to 3,639.66 and the Nasdaq Composite (.IXIC) dropped 420.91 points, or 3.8%, to 10,652.41.

Volume on U.S. exchanges was 11.15 billion shares, compared with the 11.73 billion average for the full session over the past 20 trading days.

For the week, the S&P 500 rose 1.51%,the Dow added 1.99% and the Nasdaq gained 0.73%.  All 11 major S&P 500 sectors declined, with technology (.SPLRCT) falling the most, down 4.14%.

The Philadelphia SE Semiconductor index (.SOX) fell 6.06% after a revenue warning from Advanced Micro Devices (AMD.O) signaled a chip slump could be worse than expected. The index posted its biggest single-day percentage decline in more than three weeks.  AMD shares fell 13.9% as the company's third-quarter revenue estimates were about $1 billion lower than previously forecast. It was the largest declining stock on the Nasdaq 100. read more  FedEx Corp (FDX.N) slid 0.5% after an internal memo seen by Reuters showed the division that handles most e-commerce deliveries expects to lower volume forecasts as its customers plan to ship fewer holiday packages.

Declining issues outnumbered advancing ones on the NYSE by a 5.78-to-1 ratio; on Nasdaq, a 4.56-to-1 ratio favored decliners.  The S&P 500 posted two new 52-week highs and 71 new lows; the Nasdaq Composite recorded 27 new highs and 337 new lows.