By Dan Strumpf
Stocks declined on Friday and bond yields fell, 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 177 points, or 1%, to
17730 in early afternoon trading. The S&P 500 19 points, or
0.9%, to 2043. The Nasdaq Composite Index dropped 35 points, or
0.7% to 4701.
The yield on the benchmark 10-year Treasury note fell to 1.955%
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, surpassing the 240,000 gain forecast by economists in a
Wall Street Journal survey. The unemployment rate fell to 5.6%, its
lowest level since June 2008.
However, the report also said average hourly earnings fell from
the prior month and were up just 1.7% from a year ago. The weak
wage growth underscores how individual workers remain under stress
despite the extent of the U.S. economic recovery.
U.S. stocks were also knocked lower by steepening losses in
European markets, after news that Spain's Banco Santander SA would
raise a fresh $8.88 billion in capital, prompting a selloff in
banking stocks. The Stoxx Europe 600 index closed 1.3% lower on
Friday, capping a volatile week.
"The really strong labor report highlights the continued
progress economically in the U.S., but you still have this
lingering concern about Europe," said Joe Spinelli, head of
Americas single-stock trading at Deutsche Bank.
Energy stocks posted the sharpest losses in the stock market
midmorning, with S&P 500 energy companies declining 1%
recently.
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. The sizable number of jobs added in the last
month means the Fed is likely to be more comfortable raising rates
sometime later this year, investors 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.
"It feels to us like it will be a solid year for equity returns,
but we think there is a very high wall of worry that the market is
going to have to climb," said Michael Fredericks, portfolio manager
of the $10-billion BlackRock Multi-Asset Income Fund. Among them:
the tumble in oil prices and the high chance of a rate increase by
the Federal Reserve this year.
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 2.1% a barrel to
$47.79 a barrel on the New York Mercantile Exchange.
Gold prices rose, as investors focused on the weak wage growth
as a sign the Fed would 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 7.2%.
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 1.5%.
Saumya Vaishampayan and
Min Zeng
contributed to this article
Write to Dan Strumpf at daniel.strumpf@wsj.com
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