Renewed worries about Federal Reserve policy sent the major averages lower on Thursday. The release of stronger-than-expected jobs data suggested that the central bank will need to continue its hawkish interest rate policy to get inflation under control.
The Nasdaq Composite (COMP.IND) closed -1.5%, the S&P 500 (SP500) ended -1.2% and the Dow (DJI) finished -1.0%.
The Nasdaq led the major averages lower, falling by 153.52 points to close at 10,305.24. The Dow dropped 339.69 points to finish at 32,930.08, while the S&P 500 slumped 44.87 points to end at 3,808.10.
Ten of the 11 S&P sectors finished lower. This was led by the interest rate-sensitive Real Estate and Utilities sectors, both dropping more than 2%. Energy represented the only market segment to finish higher, bouncing back from a sharp decline the previous day.
“Labor market data is keeping a tight grip on the market, as investors know that the Fed will have to weaken a very strong labor market to fight wage inflation,” BN Capital’s Leo Nelissen told Seeking Alpha. “The Fed might have to do more damage before it can take its foot off the brake.”
Nelissen added: “In light of tomorrow’s nonfarm payroll data, it is no surprise that investors aren’t in the mood to take on additional risk. This market is poised to remain range bound with more downside to the low 3,000 points range.”
Thursday’s slide came after payment processor ADP revealed that the private sector added 235K jobs in December. This was significantly more than the 145K that analysts had projected. The data pointed to ongoing resilience in the labor market, potentially opening the door for further rate hikes from the Fed.
Trading also took place ahead of key government employment statistics due out on Friday.
In the bond market, the U.S. 10-Year Treasury yield (US10Y) was flat at 3.71%. Meanwhile, the 2-Year Treasury yield (US2Y) climbed about 6 basis points to 4.45%.
Among active stocks, Bed Bath & Beyond (BBBY) dropped sharply after the retailer issued a “going concern” warning. Meanwhile, Lamb Weston (LW) rallied after the release of Street-beating quarterly results and raised guidance.