By Dan Strumpf and Saumya Vaishampayan
U.S. stocks extended their losses late morning and bond yields
fell further, despite a stronger-than-expected U.S. jobs report
that signaled continued health in the U.S. economy.
Many traders focused on an unexpectedly weak reading on wage
growth, which investors said suggested the U.S. Federal Reserve
will remain patient with any rate increases amid an already-low
inflation environment.
Snowballing losses in European markets also weighed down trading
in the U.S., traders said.
The Dow Jones Industrial Average fell 208 points, or 1.2%, to
17702. The S&P 500 declined 22 points, or 1.1%, to 2040. The
Nasdaq Composite Index dropped 50 points, or 1.1%, to 4686.
The yield on the benchmark 10-year Treasury note eased to 1.948%
Friday compared with 2.016% Thursday. Bond yields fall as prices
rise.
The Labor Department said the U.S. added 252,000 jobs in
December. Economists surveyed by The Wall Street Journal expected a
gain of 240,000 nonfarm payrolls. The unemployment rate fell to
5.6%, its lowest level since June 2008.
There were no signs of wage inflation. Average hourly earnings
fell from the prior month and were up just 1.7% from a year
earlier.
U.S. stocks extended their losses as the trading day wore on,
with European markets falling sharply ahead of the end of trading
as declines in banking stocks accelerated. The Stoxx Europe 600
index recently fell 1.1%.
Investors were focused on what the labor report means for the
timing of any interest-rate increase by the Fed, which many expect
to occur this year. Any unexpected weakness in employment growth
could delay the first increase, some say. Once the Fed does raise
rates, investors see the Fed taking its time in tightening credit,
given weak growth in Europe and Japan and the threat of deflation
posed by a sharp selloff in crude-oil prices.
Fed-funds futures, used by investors and traders to place bets
on central bank policy, showed such bettors see a 17% likelihood of
a rate increase at the Fed's June meeting, compared with 20% right
before the jobs report. The odds were up from 3.9% a month ago.
Near-zero rates and the Fed's extraordinary stimulus measures
after the 2008 financial crisis have helped stoke a yearslong rally
in stocks and bonds.
Some traders attributed Friday's declines to taking of profits
following this week's sharp two-session rally. Friday's report
wasn't enough to change investors' timeline for when the Fed will
raise rates, said Brian Fenske, head of sales trading at brokerage
ITG.
"We've had a very sharp rally in the last few days," Mr. Fenske
said. "You just got a big economic data point that the market is
still digesting ... People are still pretty comfortable with their
forecast for when the Fed will raise rates."
Stocks have had a bumpy start to 2015. The S&P 500 fell 2.7%
in the first three sessions of the year, marking the worst start to
a new year since 2008. Then, a rally in stocks carried the S&P
500 into positive territory for the year, gaining nearly 3% in the
two sessions ended Thursday. Many investors believe the bull run in
stocks has more room to run, as an improving economy and growing
corporate profits push stocks higher.
"If you think about the jobs data in isolation, that's
supportive of equities rather than not supportive," said Krishna
Memani, chief investment officer at OppenheimerFunds, which manages
$237 billion. But he added that "stock investors are nominal
investors and want higher inflation."
The dollar strengthened slightly against the yen and the euro
after the jobs report solidified currency traders' views that the
Fed is likely to proceed to raise rates while other major central
banks are preparing for further easing measures.
Crude-oil futures extended their slide Friday as signs of U.S.
economic growth were offset by the strength in the dollar, which
can pressure oil prices by making dollar-traded oil more expensive
for buyers using foreign currencies.
U.S. oil for February delivery recently fell 1.2% to $48.20 a
barrel on the New York Mercantile Exchange.
Gold prices rose, as investors focused on the weak wage growth
as a sign the Fed will be cautious in raising rates this year,
recently gaining 0.6% to $1216.30 an ounce.
Among individual stocks, Bed Bath & Beyond Inc. reported a
5% decline in third-quarter profit. Sales fell below the Wall
Street consensus. Shares declined 8.4%.
Nelson Peltz 's Trian Fund Management LP has launched a proxy
fight against DuPont Co. to add four directors to the company's
board. DuPont shares fell 0.9%.
Write to Saumya Vaishampayan at saumya.vaishampayan@wsj.com
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