U.S. stocks trade sharply lower after jobs data, extending steepest fall since 2020

What’s driving markets?

Major U.S. stock benchmarks were down Friday afternoon and heading for weekly losses after booking big gains earlier in the week.

“It’s been a confusing and erratic market, to say the least, this week,” said Keith Lerner, co-chief investment officer at Truist Advisory Services, in a phone interview Friday. “We have somewhat of a fickle market right now.” 

The big gains in Wednesday’s relief rally, which was sparked by Federal Reserve Chair Jerome Powell’s remarks that a large interest rate hike of 75 basis points was not being actively considered by the Fed, have been erased amid concerns the central bank may not be doing enough to bring inflation under control, according to Lerner. Investors are worried that inflation will stay at an elevated level, forcing the Fed to become more aggressive in a slowing economy, he said.

But Friday’s employment report should “ease some concerns” that a recession may be looming, according to Lerner, who said he is not expecting a recession in the next 12 months. Even if the economy is slowing, “at least we have some momentum.”

The U.S. economy added 428,000 new jobs in April, according to a report Friday from the U.S. Bureau of Labor Statistics. But an acute labor shortage showed little improvement last month, which could underline worries about inflation already running its hottest in 40 years. Economists polled by The Wall Street Journal had forecast 400,000 new jobs.

The unemployment rate was unchanged at 3.6%, the government said Friday, just above a 54-year low. Average hourly earnings cooled, rising 0.3% versus expectations for a 0.4% increase.

The jobs report “has something for everyone…steady job gains supporting economic growth with less wage pressure, possibly easing inflation fears,” said John Lynch, chief Investment officer for Comerica Wealth Management.

“Investors need confidence that the Fed won’t raise too aggressively and topple the economy into recession in their fight against inflation. Today’s report is balanced and may prove to dampen the extreme volatility of recent days,” he wrote.

During a discussion at the Carlson College School of Management on Friday, Minneapolis Federal Reserve President Neel Kashkari pushed back on views of many hawkish commentators that the Fed is way behind in the battle to control inflation. Kashkari said the Fed’s forward guidance has succeeded in pushing longer-term rates, adjusted for inflation, up close to a neutral level.

In the view of Ryan Belanger, founder of Claro Advisors, the central bank is “behind where they need to be on raising interest rates.” He said by phone Friday that “there’s a case to be made to rip the band-aid off and cool down this inflation.”

Major stock market indexes are on pace to end the week with small losses, which belies volatile action seen in recent days.

“As we approach intraday lows for the year, keep plenty of powder dry and build a list of quality company opportunities to add when the bottom comes,” said Louis Navellier, founder of Navellier & Associates, in a Friday note. “Companies with double-digit earnings growth remain the only way to “beat” current inflation expectations, when to step in remains uncertain.”

See: Choppy stock market got you seasick? Investors don’t see smooth sailing soon

A sharp drop in first-quarter U.S. productivity data and a rise in unit labor costs published Thursday were also cited as a factor in the market’s drop that day, underlining stagflation fears. That rubs against the assertion by Powell and other senior Fed officials that they can achieve a so-called soft landing — lowering inflation without bringing economic growth to a grinding halt.

Read: Why did the Dow plunge more than 1,000 points? Should I wait for stocks to sink lower? Here’s what some pros think.

“What’s dangerous about yesterday’s huge market slump is that there must be an element of doubting the ability of there to be an effective ‘Fed Put’ in this cycle following a 30-40 year period where the central bank has almost always been able to come to the market’s rescue,” said a team of Deutsche Bank strategists led by Jim Reid.

Read: Why the stock-market plunge was partly due to bad news on the inflation front

Heightened volatility will probably persist as the market is “trying to figure out where interest rates are going to settle,” according to Claro’s Belanger.

Meanwhile, yields on 10- and 30-year Treasury bonds hovered at levels last seen in 2018, which they reached Thursday as stocks plunged. The 10-year yield
BX:TMUBMUSD10Y
was up around 6 basis points at 3.13% on Friday afternoon.

“Rising rates are pressuring stocks,” said Truist’s Lerner.

Read: ‘You don’t want to be shocked’: It’s ‘rank day’ and here’s what that means for U.S. stocks

Which companies are in focus?

• Shares of Zillow Group Inc.
  Z
  fell 4.7% after the company blew past revenue forecasts but delivered a disappointing forecast late Thursday that reflected uncertainty facing the real-estate sector.

• Shares of Cloudfare Inc.
  NET
  were down more than 17% after the cybersecurity company’s quarterly results slightly beat Wall Street expectations, but its bottom-line forecast for the current quarter indicated a possible miss in its next report.

• DoorDash Inc.
  DASH
  shares fell 3.6% after the delivery-platform company topped revenue forecasts but posted a larger-than-expected drop.

• Shares of World Wrestling Entertainment Inc.
  WWE
  were down 2.4% after reporting earnings and revenue that beat expectations.

• Block Inc.
  SQ
  fell short on earnings and revenues, but gave upbeat signals about its Cash App business. Shares were down around 1%.

How are other assets faring?

• The ICE U.S. Dollar Index,
  DXY
   a measure of the currency against a basket of six major rivals, fell 0.1%.

• Gold futures 
  GC00
  rose, with gold for June delivery 
  GCM22
  settling 0.4% higher at $1,882.80 per ounce. Still, the precious metal lost 1.5% for the week.

• In oil futures, West Texas Intermediate crude for June delivery  
  CLM22
  was up 1.9% to $110.30 a barrel.

• Bitcoin 
  BTCUSD
  was down 1.4% at $35,926.

• In European equities, the Stoxx Europe 600 
  XX:SXXP
   closed 1.9% lower for a weekly drop of 4.5%. London’s FTSE 100 
  UK:UKX
   lost 1.5% Friday and declined 2.1% this week.

• In Asia, the Hang Seng Index HSI, -3.81% 
  HK:HSI
  closed 3.8% lower Friday and slid 5.2% for the week. The Shanghai Composite Index 
  CN:SHCOMP
   fell 2.2% Friday to book a weekly decline of 1.5%, while the Nikkei 225 Index rose 0.7% Friday for a weekly advance of 0.6%.

—Barbara Kollmeyer contributed to this report.