Stocks finished lower Friday, while the dollar added more gains against its global peers and Treasury yields leaped, as investors reacted to a scorching hot January jobs report and a trio of disappointing mega cap earnings from the tech sector.
The Dow Jones Industrial Average finished down 127 points, or 0.38%, to 33,926, while the S&P 500 fell 1.04% and the tech-focused Nasdaq lost 1.59%.
The Bureau for Labor Statistics said 517,000 new jobs were added to the economy last month, a stunning figure that blasted the Street consensus forecast of a 185,000 gain and tested the market's assumption that inflation will slow sharply into the first few months of the year.
Private payrolls were up 443,000, the BLS said, as the unemployment rate slipped to 3.4%, back to the lowest levels since 1969.
The report looks to upend a solid week of gains for the S&P 500, which is up 7.3% for the year, powered in part by a dovish interpretation of Federal Reserve Chairman Jerome Powell's Wednesday press conference, where he warned that the central bank would likely continue raising its benchmark lending rate, but noted that good progress on inflation had already been made and disinflation in some sectors was beginning to accelerate.
The CMEGroup's FedWatch tool now suggests an 94.5% chance of a follow-on hike of 25 basis points in March, up from around 82% prior to the data release, but still sees that as the last hike of the cycle, even as Powell indicated a preference for "a couple more" moves to the upside.
Benchmark 10-year Treasury note yields jumped to 3.536% while 2-year notes surged to 4.301%. The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 1.20% higher at 102.96.
"Payrolls blowing expectations out of the water adds more fuel to the Fed’s rate hike campaign," said Mike Loewengart, head of model portfolio construction, Morgan Stanley Global Investment Office. "It’s going to get harder to argue that rate cuts may be in 2023’s future if the labor market is able to continue like this, especially considering that it remains to be seen how quickly inflation will fall, even if we have reached the peak."
That said, even with the outsized labor market gains, wage growth remains muted: average hourly earnings were up 0.3% on the month, a similar level to December and around half of the November pace, and 4.4% on the year.
That followed data earlier this week that showed a marked slowdown in employment costs over the final months of last year, and yesterday's Challenger Gray report indicating layoffs for the month soared to 103,000, the highest since 2009.
Sentiment heading into the data was muted, however, following last night's December quarter updates from Apple (AAPL), Amazon (AMZN) and Google (GOOGL), all of which undershot Wall Street forecasts amid myriad issues including supply chain disruptions, fading consumer demand and costs associated with big job cuts.
Apple shares, in fact, were marked 2.4% higher the company said iPhone sales would accelerate over the three months ending in March, a forecast that offset its first quarterly earnings miss in six years, alongside its first annual revenue decline since 2019.
Google fell 3.3% after the ad-focused tech group posted softer-than-expected fourth quarter sales, amid an ongoing pullback in marketing spending from clients around that world while Amazon dropped 8.4% after a weaker-than-expected fourth quarter earnings and a muted near-term outlook.
However, stronger-than-expected PMI data for the month of January, which showed a big leap in services sector activity, easing price pressures and a jump in new orders -- alongside the massive January jobs gain -- gave rise to bet that the Fed can engineer a so-called 'soft landing' for the U.S. economy that avoids recession while taming inflation.
For the week, the Dow was down 0.15%, while the S&P gained 1.62% and the Nasdaq gained 3.31%.
In other stock news, Nordstrom (JWN) shares soared 24.8% following multiple media reports that suggest billionaire activist investors Ryan Cohen has built a significant stake in the struggling retailer and is pressing for a seat on the board.
Tesla (TSLA) shares gained nearly 1% following data some China that showed a big boost in January sales following a series of price cuts in the world's biggest car market.
In overseas markets, Europe's Stoxx 600 was marked 0.38% lower in mid-day Frankfurt trading and largely tracking U.S. futures, while Asia's region-wide MSCI ex-Japan index slipped 0.27% and Japan's Nikkei 225 gained 0.39%
