U.S. stocks swung wildly between gains and losses on Friday as investors pondered the ramifications of higher interest rates and inflation, while a stronger-than-expected jobs report helped support sentiment.
The S&P 500 last traded up 0.6% after shedding 1% earlier. The Nasdaq Composite inched up 0.2% in the volatile session. At its session low, the tech-heavy benchmark dropped 2.6%. The Dow Jones Industrial Average climbed 250 points.
The major averages bounced off their lows as bond yields retreated from their session highs. The U.S. 10-year Treasury yield last traded flat at 1.56% after popping above 1.6% to hit a 2021 high following data showing a surge in jobs growth.
Tech shares with lofty valuations got hit by rising bond yields again, continuing the pattern this week. Higher rates decrease the present value of future cash flows, making long-duration assets less attractive. Tesla tumbled more than 6% and Peloton shares fell more than 2%.
The Nasdaq Composite has dropped nearly 4% this week, falling into correction territory, or down 10% from a recent high on an intraday basis.
The Labor Department on Friday reported nonfarm payrolls jumped by 379,000 for the month and the unemployment rate fell to 6.2%. That compared to expectations of 210,000 new jobs and the unemployment rate to hold steady from the 6.3% rate in January, according to Dow Jones.
“This was a welcomed change of events for a suppressed labor market as we begin to turn the helm on a restrained economy and open back up,” said Charlie Ripley, senior investment strategist at Allianz Investment Management. “It appears the ship is pointed in the right direction and the additional stimulus coming from Congress should be the wind in the sails to get the economy back on track.”
Stocks that would benefit from a rapid economic comeback gained in the wake of the jobs report, providing the overall market with some cushion. The S&P 500 energy sector rose more than 2% as Occidental Petroleum gained nearly 6%. Some banks and many retailers jumped.
The spike in interest rates fueled fears that growth-oriented tech companies, which had led the market rally last year, may have a hard time living up to expectations if borrowing costs jump. Pandemic winners Peloton and Zoom Video have slid 19% and 14%, respectively, this week. Red-hot investor Cathie Wood, who focuses on innovative companies, saw her flagship fund lose double digits this week and wipe out its 2021 gains.
Friday’s moves followed a steep sell-off on Thursday triggered by Federal Reserve Chair Jerome Powell’s remarks on rising bond yields. The Fed chair said the recent runup caught his attention but he didn’t give any indication of how the central bank would rein it in. Some investors had expected Powell to signal his willingness to adjust the Fed’s asset purchase program.
The economic reopening could “create some upward pressure on prices,” Powell said in a Wall Street Journal webinar Thursday. Even if the economy sees “transitory increases in inflation … I expect that we will be patient,” he added.
“Equity investors, in our conversations, are really grappling with two things they may not have had to deal with for the last 10 years,” said Tom Lee, Fundstrat’s co-founder head of research. “One is the potential for inflation to actually have to be priced into equities. I think there’s a lot of confusion.”
“Then it’s a bond market that seems to be testing the Fed, which kind of scares people,” added Lee, who believes the sell-off this week is a buying opportunity.
— CNBC’s Maggie Fitzgerald contributed reporting
