By Corrie Driebusch
U.S. stocks dropped Friday as the dollar soared and Treasury
yields jumped after robust jobs growth solidified expectations of a
U.S. rate increase as soon as June.
The Dow Jones Industrial Average fell 226 points, or 1.3%, at
17909. The S&P 500 shed 24 points, or 1.1%, to 2077. The Nasdaq
Composite slid 43 points, or 0.9%, to 4940.
The dollar pushed to a new 11-year high against the euro and
rose against the yen. The euro fell to $1.0856, crossing below
$1.09 for the first time since 2003.
Selling in Treasurys sent the yield on the benchmark 10-year
note to 2.253%, compared with 2.11% before the jobs report was
released. Yields rise as bond prices fall.
Traders said stocks sank further as the dollar strengthened and
Treasury yields climbed.
"There's a perception now that U.S. rates are going to go up,
and they're starting to already do that, and with the dollar
strengthening as well it has people concerned with what it could
mean for S&P 500 earnings for the year," said Ian Winer, head
of equities trading at Wedbush Securities. "That's what's driving
stocks down."
Stock investors reacted to the move in Treasury yields by
selling sectors that perform strongly when interest rates are
depressed.
"For people who had been focused on high dividend yields, the
utility and stability trade, they're seeing this as evidence to get
out," said Peter Stournaras, portfolio manager of the BlackRock
Large Cap Series Funds, referring to the rise in Treasury yields.
"Stocks whose performance has been tied most to low interest rates
are the ones that are suffering the most."
Investors sold positions in utility companies, a sector that has
been popular in the low-interest-rate environment because of such
companies' steady dividend payments. Shares of utilities in the
S&P 500 were down 3% Friday, making it the worst-performing
sector of the day. Telecommunications and consumer-staples stocks,
groups that also tend to pay out high dividends to investors, were
among the biggest decliners on Friday as well.
The better-than-expected U.S. payrolls report keeps the Federal
Reserve on track to consider raising interest rates at its June
meeting. U.S. employers added 295,000 jobs in February, the report
said. Economists surveyed by The Wall Street Journal had expected
payrolls to rise by 240,000.
Fed funds futures, used by investors and traders to place bets
on central bank policy, showed Friday that investors see a 21%
likelihood of a rate increase in June, compared with 16% a day
earlier and 24% a month ago, according to data from the CME.
Separately, shares of Apple Inc. rose 0.7% at $127.23 on news
the stock would replace AT&T Inc. in the Dow Jones Industrial
Average. AT&T shares fell 1.4% to $33.52.
Also in focus is whether employers are paying workers more.
While the economy has steadily added jobs and the unemployment rate
has declined, wage growth remains modest. In February, average
hourly earnings increased 2% from a year earlier, a slower pace
than in January. Without greater evidence that there is enough
demand in the economy to keep the recovery going even as borrowing
costs rise, the Fed is likely to proceed with caution in raising
rates.
The U.S. stock market has often retreated following positive
reports on job creation and wage inflation as investors fear the
data could prompt the U.S. central bank to accelerate plans to
tighten monetary policy.
Stock-market gains since the financial crisis have been driven
in part by the Fed's easy monetary policy. The Fed ended its
bond-buying program last year and officials are debating when to
raise short-term rates, which have been held near zero since
December 2008. Many investors say that even when the Fed begins to
raise rates, it will do so slowly, allowing for further gains in
stocks.
However, even as the Fed moves to tighten monetary policy, other
countries are continuing to pump cash into their economies, with
policies from the European Central Bank and the Bank of Japan
encouraging investors searching for higher returns to pour their
money into the U.S. stock market.
In other markets, U.S. oil futures fell sharply. The front-month
April contract for light sweet crude was recently down $1.38, or
2.7%, at $49.37 a barrel on the New York Mercantile Exchange.
Shares of energy companies in the S&P 500 declined 1.3%.
Gold prices fell. Gold for April delivery, the most actively
traded contract, was recently down 2.7% at $1,164.10 a troy ounce
on the Comex division of the New York Mercantile Exchange.
In corporate news, Bank of America Corp.'s shares rose 2% after
the bank's positive stress-test results exceeded investor
expectations.
Gap Inc. shares declined 1.4% after it reported a 4% drop in
February same-store sales at its namesake stores.
Foot Locker Inc.'s stock added 4.7% after the sportswear
retailer posted better-than-expected results in its holiday
quarter.
Write to Corrie Driebusch at corrie.driebusch@wsj.com
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