Jobs Friday Shakes Things Up

By Connor Smith Friday, February 3

On Fire. U.S. stocks fell today because a historic jobs report showed the Federal Reserve still has its work cut out for it.

The Dow Jones Industrial Average fell 0.4%, and 0.2% on the week. The S&P 500 fell further at 1%, cutting this week's gains to 1.6%. The Nasdaq Composite sank 1.6%, though the tech-heavy index still gained 3.3% on the week.

The U.S. economy added 517,000 jobs in January, sailing over the 185,000 job mark set by economists surveyed by FactSet. The unemployment rate also fell to 3.4%, its lowest level since 1969. Economists had expected the unemployment rate to rise to 3.6%.

Oanda analyst Edward Moya writes that the report shocked investors expecting signs of a slowing economy. He points to broad growth across leisure and hospitality, health care and professional services. He adds:

The disinflation process may have begun, but a strong labor market may prove troubling for bets for inflation to continue to drop quickly.  Investors expecting that the Fed will cut rates at the end of the year might be in for a rude awakening.  We won't see linear moves with inflation trends and that should make it unlikely for inflation to be at low enough levels to justify rate cuts. 

Barron's Jack Denton points out that it wasn't all bad news for those looking for signs of progress following the Federal Reserve's string of interest rate increases. Jack writes:

There were few signs of wage inflation in the latest jobs report, which might please the Fed. Average hourly earnings were in line with expectations on a monthly basis, rising by 10 cents, or 0.3%, versus wage growth of 0.4% in December. The average work week rose to 34.7 hours from 34.4 hours in December.

“Arguably the most important point for the Fed … is that wage growth is slowing anyway,” Andrew Hunter, senior U.S. economist at Capital Economics, wrote in a note. “It underlines our belief that core inflation can continue to fall sharply even without a significant weakening in labor market conditions.”

It may seem counter-intuitive that such a stunningly strong report—one that signals the U.S. isn't on the verge of recession—would send stocks lower. Clearly some traders agreed, because the S&P 500 touched positive territory around midday before falling through the end of the session.

Stocks will face another test next week with a stacked slate of earnings reports, including Walt Disney, BP, and Chipotle Mexican Grill.

Watch our weekly TV show on Fox Business Saturday or Sunday at 10 a.m. or 11:30 a.m. ET. This week, insights from Wharton finance professor Jeremy Siegel on what's ahead for the market. 

DJIA: -0.38% to 33,926.01
S&P 500: -1.04% to 4,136.48
Nasdaq: -1.59%  to 12,006.95

The Hot Stock: Clorox +9.8%
The Biggest Loser:  Gen Digital -9/6% 

Best Sector: Financials -0.2%
Worst Sector: Consumer Discretionary -3.1%