Stocks end mixed, but book weekly gains as strong jobs data challenges Fed to push interest rates higher

How stocks traded

• The Dow Jones Industrial Average
  DJIA,
  +0.10%
  rose 34.87 points, or 0.1%, to close at 34,429.88.

• The S&P 500
  SPX,
  -0.12%
  slipped 4.87 points, or 0.1%, to finish at 4,071.70.

• The Nasdaq Composite
  COMP,
  +1.87%
  dropped 20.95 points, or 0.2%, to end at 11,461.50.

All three major benchmarks booked a second straight week of gains, according to Dow Jones Market Data. Stocks had soared on Wednesday with the Dow climbing more than 700 points in the wake of Fed Chairman Jerome Powell’s remarks about the likelihood that the Fed will downshift to a 50 basis point interest-rate hike later this month.

What drove markets

Stocks mostly fell Friday as investors digested a stronger-than-anticipated jobs report, with the S&P 500 finishing slightly lower but still up for the week.

The U.S. economy added 263,000 new jobs in November, beating expectations for 200,000 jobs, which would have been the lowest monthly number since December 2020. The prior month’s reading was also revised higher to 284,000.

“The market’s hanging in here better than I would have initially thought” given the strength of the jobs report, said Scott Wren, senior global market strategist at Wells Fargo Investment Institute, in a phone interview Friday. He said that sometimes “what’s good for the economy is bad for the market because of the implications” for how aggressively the Fed may react to cool demand through interest rate hikes.

The market’s decline Friday reflected concerns that a strong jobs report means that inflation may stay elevated for longer and the Fed’s terminal rate may wind up higher than expected, Wren said.

Stocks fell as shorter-term Treasury yields rose. The rate on the two-year Treasury note
TMUBMUSD02Y,
4.292%
edged up 2.4 basis points Friday to 4.278%, while 10-year Treasury yields
TMUBMUSD10Y,
3.494%
dipped 2.3 basis points to 3.502%, according to Dow Jones Market Data.

See: U.S. jobs data puts jumbo interest rate hike back on table at Fed’s December meeting

Still, Wren said that he anticipates the Fed will reduce the size of its next rate hike at its policy meeting this month to 50 basis points, shifting down from a series of jumbo rate hikes of 75 basis points as it battles high inflation. 

“The Fed’s desire to slow down its rate hikes, but then to keep rates high/restrictive for a while to let the policy ‘marinate’ through the system strikes us as a very prudent path,” wrote Rick Rieder, BlackRock’s chief investment officer of global fixed income and head of the firm’s global allocation investment team, in emailed comments Friday. 

Fed funds futures, which allow traders to place bets on the path of Federal Reserve policy, see the fed funds rate peaking at 5.25% next year, according to the CME’s FedWatch tool. St. Louis Fed President Jim Bullard indicated in a chart last month that the fed funds rate, which is the central bank’s benchmark policy rate, might need to rise as high as 7%.

“Friday’s stronger-than-expected jobs report gives the Federal Reserve more reasons to continue raising interest rates and maintain tighter monetary policy for longer, at least until the labor market begins to weaken, which is a signal that the market does not want to hear right now,” said Robert Schein, chief investment officer a Blanke Schein Wealth Management, in emailed comments.

See: U.S. adds 263,000 jobs in November and wages rise sharply — far too much for the Fed’s liking

Still, some market strategists see a silver lining.

“The report is a positive development for the economy and helps support the case that the Fed may be able to achieve a soft landing in the economy, an outcome that’s contrary to predictions made by some of the nation’s largest banks in recent months,” said Peter Essele, head of portfolio management at Commonwealth Financial Network, in emailed comments.

The unemployment rate was unchanged at 3.7% in November, while wage growth accelerated over the past year to 5.1%, according to the report Friday from the U.S. Bureau of Labor Statistics.

“The labor market remaining hot continues to justify what the Fed is doing,” said Nicole Webb, financial advisor at Wealth Enhancement Group, in a phone interview Friday. “I don’t think it changes course from the 50 basis-point expectation in December,” she said, “but we’ve really started to question how high the terminal rate has to get to, to have the demand destruction that brings inflation down to 2%.”

Although the stock market ended mostly lower Friday, all three major benchmarks booked weekly gains. The S&P 500 rose 1.1% for the week, while the tech-heavy Nasdaq Composite gained 2.1% and the Dow Jones Industrial Average added 0.2%, according to Dow Jones Market Data.

Stocks in focus

• UiPath Inc.
  PATH,
  +12.46%
  shares jumped 12.5% after the “software robot” provider’s quarterly results and outlook topped Wall Street estimates.

• Shares of Cracker Barrel Old Country Store Inc.
  CBRL,
  -12.94%
  tumbled 12.9% after the home-style restaurant chain with retail stores inside missed fiscal first-quarter profit expectations.

• PayPal Holdings Inc.
  PYPL,
  -4.93%
  shares dropped 4.9%, making it one of the worst S&P 500 performers.

—Steve Goldstein contributed to this article.