Stocks turned negative after the Labor Department’s February jobs report handily exceeded expectations, reaffirming the building momentum in the economic recovery, but also stoking a rise in Treasury yields and concerns over an economic overheating.
The S&P 500 dipped, and the Dow gained fell into negative territory after rising earlier in the session. The Nasdaq erased earlier gains and fell another 1.5%, pacing toward a fourth straight session of steep declines. The index has erased its year-to-date gains and is on pace to close in a formal correction, closing at least 10% below a recent record closing high.
Treasury yields rose to about 1.6%, hovering around a one-year high after the Labor Department’s February jobs report showed the economy made additional strides to bring back payrolls early this year, with jobs rising by a better-than-expected 379,000 during the month.
“An above average payroll report (+379k), upward revisions, and a falling unemployment rate (to 6.2%) point to continued recovery. Markets will remain concerned that the potentially massive impact of a $1.9 trillion fiscal relief package could turbo charge the recovery later in the year, and spill into higher inflation,” David Donabedian, chief investment officer of CIBC Private Wealth, wrote in an email Friday morning. “A 355,000 gain in the leisure and hospitality sector suggests that the economy is re-opening from COVID lockdowns, with more expected in the months ahead.”
Federal Reserve Chairman Jerome Powell suggested Thursday that the central bank would remain “patient” with holding benchmark rates near zero, even in the face of rising inflationary pressures. Some investors have worried that the massive stimulus passed by Congress – with another $1.9 trillion stimulus package currently up for debate in the Senate – alongside ultra-accommodative monetary policy may be stoking an even faster-than-expected economic recovery, which could lead to a runaway surge in prices. Technology stocks have especially borne the brunt of this week’s leg lower in equity markets, as investors unwound their positions in high-growth stocks in favor of shares of companies with earnings more closely tied to a strong economic recovery.
“I think what has spooked investors is two things: One is the speed with which we got from essentially just below 1% to 1.5% [in the 10-year Treasury yield] in the first two months of the year. Forecasts were certainly for getting to this level, and up to as high as 2%, by the end of the year, but it happened rather quickly,” Tony Rodriguez, Nuveen head of fixed income strategy, told Yahoo Finance.
“And then I think also, it’s the positive information that we’ve gotten in terms of fiscal policy, in terms of actual economic data and in terms of the successful, or really sped-up rollout of the vaccine leading to much much more positive…
Read More: Stocks turn lower as rate fears rise after strong jobs report