By Joe Wallace and Karen Langley
U.S. stocks dropped Friday after February's stronger-than-expected employment report helped government bond yields extend their recent surge.
The S&P 500 dropped 0.8%, while the Dow Jones Industrial Average edged down 0.3% or about 100 points. The technology-heavy Nasdaq Composite fell 2.3%, putting it on pace for a correction, a drop of 10% from its recent high.
The S&P 500 was poised to end the week with a modest loss, while the Nasdaq was on course to slump more than 5% for the week. It would be the third consecutive week of declines for both stock gauges.
"This last week has been a classic correction in growth versus value," said Tom Plumb, president, and portfolio manager at Plumb Funds. "But it doesn't mean that it portends something much greater."
The February report showed the economy added 379,000 new jobs last month, ahead of estimates of 210,000. The unemployment rate was 6.2%, versus the consensus of 6.3%. Those figures add to signs of a slow improvement in the labor market after data on Thursday showed filings for unemployment benefits reached their lowest level in three months.
In a sign of the recent choppy trading in equities, futures wobbled with the jobs report's release, giving up their gains before again trading higher. Stocks then advanced after the opening bell before giving up those gains.
"There's volatility to be expected, especially after we've had a bit of a selloff, a bit of a rocky week," said Cliff Hodge, chief investment officer at Cornerstone Wealth. "It's not surprising that we're bouncing around. People are looking for direction."
Stocks have stumbled in recent weeks as a climb in bond yields has called into question whether low-interest rates, which propelled valuations higher for much of the past year, can continue for much longer. Yields, which rise as bond prices fall, have rallied in response to expectations of a quickening pace of growth and inflation as the economy reopens from the coronavirus pandemic.
The yield on the 10-year U.S. Treasury note rose again Friday to 1.582%, from 1.547% Thursday. That marked the highest level for the benchmark borrowing cost since February of last year. The recent climb in yields came after Federal Reserve Chairman Jerome Powell provided no sign the central bank would seek to stem the rise when he spoke at The Wall Street Journal Jobs Summit.
"It is all about the bond-yield moves. It is all about Jerome Powell," said Edward Park, chief investment officer at Brooks Macdonald. "There is a huge amount of uncertainty in the market at the moment as to whether the inflation that is widely expected in the short term is transient or whether it is more sustained."
Bond yields are likely to keep rising and stocks may remain jittery unless the Fed takes concrete steps to put a cap on yields, according to Mr. Park. "Markets are at their most volatile when they are not sure how monetary policy and fiscal policy is going to react."
The jobs report may not sway bond yields much because the data are unlikely to affect the progress of the Biden administration's stimulus package through the Senate, said Lyn Graham-Taylor, senior rates strategist at Rabobank. The Senate on Thursday advanced the $1.9 trillion bill after making a series of adjustments and is expected to give its approval within days.
Yields are likely to keep heading higher, according to Mr. Graham-Taylor. "So far the Fed's emphasized that it's not loving it, but it is pretty comfortable with it," he said. "In the back of their minds, it is natural for yields to rise a bit: We're not in the eye of the storm as we were."
Technology stocks have borne the brunt of the shift in sentiment in recent weeks. The Nasdaq Composite Index, a closely watched barometer for the sector, on Thursday fell to its lowest level since Jan. 4. The index ended the day down 9.7% from its Feb. 12 high, putting it just short of correction territory.
Among individual stocks Friday, shares of Gap rose 5.5%. Executives at the firm late Thursday predicted a rebound in apparel sales in the second half of the year after a difficult 2020. Norwegian Cruise Line Holdings dropped 15% after the cruise operator said it started a public stock offering.
Shares of energy companies including Exxon Mobil and Occidental Petroleum received a boost from rising oil prices after an unexpected decision by OPEC and its partners to roll over production cuts in April.
Oil prices rallied for a second day after OPEC and a Russia-led coalition of oil producers kept most of their production cuts in place, taking the market by surprise. Brent-crude futures rose 3.1% to $68.80 a barrel. The cartel's decision will push the international energy benchmark to $75 a barrel in the second quarter and $80 in the third, analysts at Goldman Sachs Group said.
Overseas, the pan-continental Stoxx Europe 600 ticked down 0.8%. Major Asian indexes also declined. Japan's Nikkei 225 ticked 0.2% lower, while Hong Kong's Hang Seng Index dropped 0.5%.
Write to Joe Wallace at Joe.Wallace@wsj.com and Karen Langley at firstname.lastname@example.org
(END) Dow Jones Newswires
March 05, 2021 11:47 ET (16:47 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
As also seen in the Wall Street Journal - https://www.wsj.com/articles/global-stock-markets-dow-update-03-05-2021-11614934281
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