A trader works on the floor of the New York Stock Exchange in Manhattan.  Major Wall Street indexes opened lower on Friday as new jobs data fueled inflation concerns

Dow drops 400 points extending losses after worst day since 2020

Wall Street ended lower on Friday amid worries about rising Treasury yields and the prospect of further rate hikes from the Fed.

The Dow Jones Industrial Average fell 99 points on Friday, or 0.3%, to end its sixth consecutive week in the red. The S&P 500 fell 0.6% and the Nasdaq 1.4%.

It followed the Dow’s worst day since the pandemic crash of 2020 on Thursday, as investor sentiment slumped amid fears that the Fed’s interest rate hike won’t be enough to bring the surge under control. of inflation.

“Ninety-five percent of the market drivers right now are long-term interest rates,” said Jay Hatfield, founder and managing director of Infrastructure Capital Management in New York.

The latest jobs report on Friday morning only heightened those worries, showing nonfarm payrolls rose by 428,000 jobs last month, well above the 391,000 expected by economists polled by Reuters.

A trader works on the floor of the New York Stock Exchange in Manhattan. Major Wall Street indexes opened lower on Friday as new jobs data fueled inflation concerns

The Dow Jones fell again after its worst day since the pandemic crash of 2020 on Thursday

The Dow Jones fell again after its worst day since the pandemic crash of 2020 on Thursday

Although strong job gains speak to the underlying strength of the economy, fears are growing that a labor shortage will combine with high inflation to create a “wage-price spiral” and cause derail consumer prices.

Friday’s data showed the jobless rate was unchanged at 3.6% in April, while average hourly earnings rose 0.3% from forecasts of a 0.4% rise.

As for the labor force participation rate, which measures the percentage of working-age Americans who are working or looking for work, it remained unchanged at 62.2%, a level which, before the pandemic, was not last seen in the 1970s.

The Fed is counting on more Americans to re-enter the workforce to rein in rising wages, a shift that is slow to unfold.

While rising wages are usually a boon for workers, they can be a double-edged sword if they force companies to rapidly raise the prices of the goods and services they sell.

And indeed, the average wage gains seen by American workers over the past year have been more than wiped out by the high rate of inflation, leaving them worse off than before.

U.S. jobless rate remains near 50-year low at 3.6%, April jobs report shows

U.S. jobless rate remains near 50-year low at 3.6%, April jobs report shows

Friday morning's latest jobs report heightened inflation concerns, showing nonfarm payrolls rose by 428,000 jobs last month, well above expectations

Friday morning’s latest jobs report heightened inflation concerns, showing nonfarm payrolls rose by 428,000 jobs last month, well above expectations

On Wall Street on Friday, speculative growth sectors such as biotechnology and solar energy were the hardest hit.

Illumina fell more than 11%, while Enphase Energy fell nearly 5%.

Under Armor plunged 24% after the sportswear maker forecast negative full-year profit, as it grapples with higher transportation costs and a hit to its business from new COVID-19 restrictions. 19 in China.

Shares of rival Nike also fell, falling 5.6%.

DoorDash shares fell 5% even after the food delivery company raised its full-year guidance for the core growth target and reported upbeat quarterly earnings.

With all the signs pointing to an ultra-tight labor market, worries have grown that the country could be entering a so-called “wage-price” spiral.

The wage-price spiral, which was partly responsible for double-digit inflation in the 1970s, occurs when workers expect prices to rise rapidly and demand higher wages to compensate.

Employers, forced to pay higher wages, raise their prices to compensate, creating a self-perpetuating cycle that is hard to break.

The consumer price index rose to 8.5% in March from a year ago, and new April inflation data is expected to be released next week.

The consumer price index rose to 8.5% in March from a year ago, and new April inflation data is expected to be released next week.

Investors fear that Fed Chairman Jerome Powell's gradual rate hike path may not be enough to bring soaring inflation under control, after several new warning signs flashed over inflation

Investors fear that Fed Chairman Jerome Powell’s gradual rate hike path may not be enough to bring soaring inflation under control, after several new warning signs flashed over inflation

At Wednesday’s press conference, Fed Chairman Jerome Powell tried to play down fears of a wage-price spiral, saying higher wages would draw more workers into the job market and reduce labor shortage.

“We like to think that supply and demand will rebalance and therefore wage inflation will moderate to levels of wage increases that are still high but more consistent with 2% inflation. is our expectation,” Powell said.

“We don’t see a wage-price spiral,” he added. “We cannot allow a wage-price spiral to occur, and we cannot allow inflation expectations to become unanchored. It’s just something we can’t allow.

The Fed took action against inflation by raising rates this week, but some analysts fear the central bank was slow to tackle rising prices, which Powell said was “transient.”

At the end of its May meeting on Wednesday, the Fed raised benchmark interest rates by half a percentage point, taking the target rate from 0.75% to 1%, in its largest rate increase ever. unique since May 2000.

The central bank said it would also begin the process of shrinking its $9 trillion balance sheet, which swelled during the pandemic as the Fed gobbled up bonds to inject cash into the economy.

The reduction in holdings on the Fed’s balance sheet will further increase lending costs across the economy, as will the higher benchmark rate.

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