Stocks lost early gains, end down for 3rd straight week

Currency traders work in the foreign exchange trading room at the KEB Hana Bank headquarters in Seoul, South Korea, Friday, Sept. 2, 2022. Asian stock markets were mixed on Friday ahead of U.S. employment data United that could influence the Federal Reserve's plans for more interest rate hikes to cool runaway inflation.  (AP Photo/Ahn Young-joon)

Currency traders work in the foreign exchange trading room at the KEB Hana Bank headquarters in Seoul, South Korea, Friday, Sept. 2, 2022. Asian stock markets were mixed on Friday ahead of U.S. employment data United that could influence the Federal Reserve’s plans for more interest rate hikes to cool runaway inflation. (AP Photo/Ahn Young-joon)

PA

Stocks gave up on an early rally and closed lower on Friday, marking their third straight losing week and extending Wall Street’s late summer slide.

Major stock indexes initially rose broadly following the government’s latest labor market report, which showed employers slowed hiring in August. The report put traders in a buying mood, fueling cautious optimism that the Federal Reserve may not need to raise interest rates as aggressively in its continued bid to rein in the inflation.

But the market reversed course by mid-afternoon, losing all of its gains. That left the S&P 500 and the Dow Jones Industrial Average down 1.1%. The Nasdaq composite fell 1.3%.

“Today’s jobs report was good, but obviously it wasn’t enough to sustain the rally,” said Ross Mayfield, investment strategist at Baird. “The bar to cross is ‘does this change the course of the Fed?’ And I don’t know if this report is enough to say yes.

In recent weeks, the market has wiped out much of the gains it made in July and early August as traders feared the Fed might unwind its interest rate hike anytime soon to lower the highest inflation in decades.

The latest jobs data seems to give traders hope that a key driver of inflation is cooling. On Friday, the Labor Department said the US economy added 315,000 jobs last month, up from 526,000 in July and below the average gain of the previous three months. The jobless rate also rose to 3.7% from 3.5% in July.

Average hourly earnings jumped 5.2% last month from a year earlier, but slowed slightly from July to August. This is a welcome sign in the fight against inflation, as companies generally pass the cost of higher wages onto their customers through higher prices.

“Today’s jobs report is a step in the right direction as the pace of job and wage growth has stabilized,” said Matt Peron, chief research officer. at Janus Henderson Investors. “However, we reiterate our caution that we are not off the hook yet, as stubbornly high wage gains could keep the Fed on an aggressive course.”

The Fed has already raised interest rates four times this year and is expected to raise short-term rates by 0.75 percentage points at its next meeting later this month, according to CME Group. Following the jobs report, expectations for that three-quarter percentage point rise fell to 56% from 75% on Thursday.

Market watchers such as David Kelly, chief global strategist at JP Morgan Asset Management, said they still expect the central bank to raise rates later this month by 0.75 percentage points. additional.

Signs of some easing in the labor market as well as more welcome news on lower gasoline prices “increase the chances that the economy can gradually return to lower inflation over the next year without fall into a recession,” Kelly said.

Stocks slipped last week after Chairman Jerome Powell said the Fed needed to keep rates high enough “for a while” to slow the economy.

“The Fed won’t be swayed by one or two data, and it’s determined to bring inflation down,” Mayfield said. “They need a very large and long body of evidence before they can pivot, because the last thing they want is to stop too soon.”

The latest jobs data comes a day after the Department of Labor announced that jobless claims fell last week, another sign of a strong labor market. He said earlier this week that there were two jobs for every unemployed person in July.

The Fed may also review upcoming reports on consumer prices and wholesale inflation, among other economic reports, ahead of its next interest rate policy meeting.

Friday afternoon’s market reversal followed Russian energy giant Gazprom’s announcement that the shutdown of natural gas supplies via the Nord Stream 1 gas pipeline to Germany could be extended. The company cited the need for urgent maintenance work on the pipeline. On Wednesday Gazprom completely halted the flow of gas through the pipeline and said the shutdown would last three days.

Treasury yields, which rose alongside higher interest rate expectations, fell overall. The 10-year Treasury yield, which influences interest rates on mortgages and other loans, slipped to 3.20% from 3.26% on Thursday evening. The two-year Treasury yield, which tends to track expectations for Fed action, fell to 3.40% from 3.52%.

U.S. stock markets will be closed Monday for the Labor Day holiday.

This story was originally published September 2, 2022 2:09 a.m.

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