Dow falls 400 points as jobs data, hawkish Fed speak hammer stocks

The S&P 500 is on track to finish Friday with another weekly decline, what would be its fifth such loss in a row, the longest such streak since last spring.

What’s driving markets

Markets were not impressed with the latest batch of data about the U.S. labor market which suggested that employment has been undisturbed by the Fed’s most aggressive interest-rate hikes in about four decades.

The reaction in stocks and bond yields was the latest example of the “good news is bad news” dynamic playing out in markets.

“As long as we’re still in a rate-hiking cycle, good economic data is going to be bad news for markets,” Art Hogan, chief market strategist at B.Riley Wealth, in a phone call with MarketWatch.

ADP private payrolls data showed 235,000 jobs were created in December, beating expectations for 153,000 new jobs, according to economists polled by The Wall Street Journal. The data also showed large increases in workers’ pay.

Initial jobless benefit claims also declined last week to 204,000, the lowest level since September. Data on job openings released Wednesday showed more than 10 million job openings in the U.S., another sign that the labor market remains unperturbed despite the Fed’s rate hikes and layoffs by financial and technology firms.

On Friday, investors will receive the monthly non-farm payrolls report for December from the U.S. Labor Department.

“While we will get a better overall picture of the jobs market tomorrow, private payrolls beating expectations and jobless claims coming in below are indications that the labor market remains resilient,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.

Fed Chairman Jerome Powell has said that the labor market must weaken to prevent strong wage gains for workers from fueling inflation.

Adding a layer of complexity to the state of the labor market, news of mass layoffs at Amazon.com Inc.  and Salesforce Inc.  were the latest in a drumbeat of technology sector job cuts.

Hawkish comments from senior Fed officials also impacted stocks on Thursday.

Kansas City Federal Reserve Bank President Esther George spoke on CNBC Thursday to say she had raised her forecast for the fed-funds rate to above 5% and expects it to stay there for some time as the central bank continues its fight against inflation.

Her comments echoed the hawkish tone from Minneapolis Fed President Neel Kashkari, who shared his outlook in a blog post on Wednesday, as well as the minutes from the Fed’s December meeting which showed the central bank is generally not happy with markets’ response to its rate hikes.

Higher bond yields also weighed on stocks, market strategists said, as the yield on the 10-year note rose 6.2 basis points to 3.772%, reversing some of its declines from the past few sessions.

Companies in focus

• Walgreens Boots Alliance  stock fell even after the drugstore chain reported fiscal first quarter earnings that beat analyst estimates and raised its full-year revenue outlook partly due to its U.S. health care segment’s acquisition of Summit Health.
• Amazon rose after announcing it’s cutting 18,000 jobs or about 1% of its workforce, becoming the latest technology company to cut back after expanding rapidly during the pandemic.
• Silvergate Capital   slumped after it said digital asset deposits tumbled by $8.1 billion from Sep. 30 through the end of the year to just $3.8 billion in the wake of the collapse of crypto exchange FTX which sparked a run forcing the bank to sell assets at a steep loss to cover some $8.1 billion in withdrawals. The bank said it was forced to sell $5.2 billion in debt to cover withdrawals and recorded a in a $718 million loss in the fourth quarter on that sale.
• Shares of other lenders with ties to the crypto industry also declined, including SVB Financial Group  and Signature Bank 
• Stitch Fix Inc.  shares rose as the company announced plans to reduce its salaried headcount by 20%.