Dow ends down nearly 350 points after jobs data, hawkish Fed comments hammer stocks

The S&P 500 is on track to finish Friday with another weekly decline, what would be its fifth such loss in a row, the longest such streak since last spring.

What drove markets

Labor market data published Thursday suggested that employment is still healthy despite the Fed’s most aggressive interest-rate hikes in about four decades and despite news of mass layoffs at Amazon.com Inc. AMZN, Salesforce Inc. CRM, Genesis Global Trading Inc. and other technology companies.

ADP private payrolls data showed 235,000 jobs were created in December, beating expectations for 153,000 new jobs, according to economists polled by The Wall Street Journal. The data also showed large increases in workers’ pay.

Initial jobless benefit claims also declined last week to 204,000, the lowest level since September. Data on job openings released Wednesday showed more than 10 million job openings in the U.S., another sign that the labor market remains unperturbed despite the Fed’s rate hikes and layoffs by financial and technology firms.

The reaction in stocks and bond yields was the latest example of the “good news is bad news” dynamic playing out in markets.

“As long as we’re still in a rate-hiking cycle, good economic data is going to be bad news for markets,” Art Hogan, chief market strategist at B.Riley Wealth, in a phone interview with MarketWatch.

On Friday morning, investors will receive the monthly non-farm payrolls report for December from the U.S. Labor Department.

See: U.S. job growth seen slowing to 200,000 in December, but that’s still too much for the Fed

“While we will get a better overall picture of the jobs market tomorrow, private payrolls beating expectations and jobless claims coming in below are indications that the labor market remains resilient,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.

Bill Adams, chief economist of Comerica Bank expects the December jobs report, to show the unemployment rate unchanged on the month at 3.7% and 203,000 nonfarm payroll jobs added from November.

“The unemployment rate has been held down in the last few months by the ‘tripledemic’ of flu, Covid and RSV infections, which are keeping potential jobseekers out of the labor force and holding down measured unemployment,” he said in emailed comments on Thursday. “The government doesn’t count as jobless people who are not working but aren’t looking for work because they are sick, caring for sick kids, or watching kids whose preschool is short-staffed.”

However, Adams forecasts the unemployment rate to tick up to around 4.5% by mid-2023, both due to the abatement of the seasonal illnesses and to a broad-based softening of the economy.

Fed Chairman Jerome Powell has said that the labor market must weaken to prevent strong wage gains for workers from fueling inflation.

Hawkish comments from senior Fed officials also impacted stocks on Thursday.

Kansas City Federal Reserve Bank President Esther George spoke on CNBC Thursday to say she had raised her forecast for the fed-funds rate to above 5% and expects it to stay there for some time as the central bank continues its fight against inflation. Meanwhile, Atlanta Fed President Raphael Bostic also said on Thursday that the central bank still has “much work to do” to tame inflation.

Her comments echoed the hawkish tone from Minneapolis Fed President Neel Kashkari, who shared his outlook in a blog post on Wednesday, as well as the minutes from the Fed’s December meeting which showed the central bank is generally not happy with markets’ response to its rate hikes.

James Bullard, president of the St. Louis Federal Reserve, said on Thursday afternoon that high inflation is likely to recede in 2023. He also acknowledged while the benchmark rate is not yet in a zone that may be considered sufficiently restrictive, it is getting closer. 

See: Fed to stock market: Big rallies will only prolong painful inflation fight

Higher bond yields and a strong dollar also weighed on stocks. The yield on the 10-year note
TMUBMUSD10Y,
3.706%
rose 1.1 basis points to 3.720% from 3.709% on Wednesday, reversing some of its declines from the past few sessions. The ICE U.S. Dollar Index
DXY,
+0.85%,
a gauge of the dollar’s strength against a basket of major currencies, gained 0.9% at 105.15.

Companies in focus

• Walgreens Boots Alliance 
  WBA,
  -6.13%
  stock finished 6.1% lower even after the drugstore chain reported fiscal first quarter earnings that beat analyst estimates and raised its full-year revenue outlook partly due to its U.S. health care segment’s acquisition of Summit Health.

• Amazon
  AMZN,
  -2.37%
  was off 2.4% after
  undefined
  announcing it’s cutting 18,000 jobs or about 1% of its workforce, becoming the latest technology company to cut back after expanding rapidly during the pandemic.

• Silvergate Capital
  SI,
  -42.73%
  slumped 42.7% after it said digital asset deposits tumbled by $8.1 billion from Sep. 30 through the end of the year to just $3.8 billion in the wake of the collapse of crypto exchange FTX which sparked a run forcing the bank to sell assets at a steep loss to cover some $8.1 billion in withdrawals. The bank said it was forced to sell $5.2 billion in debt to cover withdrawals and recorded a in a $718 million loss in the fourth quarter on that sale.

• Shares of other lenders with ties to the crypto industry also declined, including SVB Financial Group 
  SIVB,
  -3.11%
  and Signature Bank 
  SBNY,
  -6.02%,
  which dropped 3.1% and 6%, respectively.

• Stitch Fix Inc. 
  SFIX,
  +9.38%
  shares rose 9.4% as the company announced plans to reduce its salaried headcount by 20%.

— Jamie Chisholm contributed to this article