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| Photo Credit: AP. |
(AP) - Stocks gave up an early rally and closed lower Friday, marking their third losing week in a row and extending Wall Street’s late-summer slump.
Major stock
indexes initially climbed broadly following the government’s latest job market
report, which showed employers slowed their hiring in August. The report put
traders in a buying mood, stoking cautious optimism that the Federal Reserve
may not need to raise interest rates as aggressively in its ongoing bid to tame
inflation.
But the
market reversed course by mid-afternoon, shedding all its gains. That left the
S&P 500 and Dow Jones Industrial Average 1.1% lower. The Nasdaq composite
fell 1.3%.
“The jobs
report today was nice, but it was not enough to obviously sustain the rally,”
said Ross Mayfield, investment strategist at Baird. “The bar to clear is ‘does
this change the trajectory of the Fed?’ And I don’t know that 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 worried that the Fed would not let up anytime soon on raising
interest rates to bring down the highest inflation in decades.
The latest
jobs data appeared to give traders some hope that a key driver of inflation is
cooling. On Friday, the Labor Department reported that the U.S. economy added
315,000 jobs last month, down from 526,000 in July and below the average gain
of the previous three months. The unemployment rate also rose to 3.7% from 3.5%
in July.
Average
hourly pay jumped 5.2% last month from a year earlier, but slowed slightly from
July to August. That’s a welcome sign in the inflation fight, as businesses
typically pass the cost of higher wages on to their customers through higher
prices.
”Today’s
jobs report was a step in the right direction, in that the pace of job and wage
growth stabilized,” said Matt Peron, director of Research at Janus Henderson
Investors. “However, we reiterate our caution that we are not out of the woods
just yet, as stubbornly high wage gains could keep the Fed on an aggressive
path.”
The Fed has
already raised interest rates four times this year and is expected to raise
short-term rates by another 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 hike fell to 56% from 75% on Thursday.
Market
watchers such as David Kelly, chief global strategist at J.P. Morgan Asset
Management, said they still expect the central bank to raise rates later this
month by another 0.75 percentage points.
Stocks
entered a skid last week after Chair Jerome Powell said the Fed needs to keep
rates elevated enough “for some time” to slow the economy.
“The Fed is
not going to be swayed by one or two pieces of data, and they are steadfast
about getting inflation down,” Mayfield said. “They need a really broad and
long body of evidence before they’re going to pivot because the last thing they
want is to quit too early.”
The latest
jobs data comes a day after the Labor Department reported unemployment claims
fell last week in another sign of a strong job market. It said earlier this
week there were two jobs for every unemployed person in July.
The Fed will
also get to review upcoming reports on consumer prices and inflation at the
wholesale level, among other economic reports, before its next interest rate
policy meeting.
Friday’s
afternoon market reversal followed an announcement by Russian state-run energy
giant Gazprom that a halt in natural gas supply through the Nord Stream 1
pipeline to Germany may be prolonged. 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 stoppage would last for three
days.
Treasury
yields, which have been rising along with expectations for higher interest
rates, fell broadly. The yield on the 10-year Treasury, which influences
interest rates on mortgages and other loans, slipped to 3.20% from 3.26% late Thursday.
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.