US Treasuries, Tech Stocks Fall After Strong Jobs Report
Wall Street tech stocks fell and the 10-year US Treasury yield hit its highest since January 2020 after a strong US jobs report underscored expectations for the first interest rate hike of the Federal Reserve in the era of the pandemic.
The blue-chip S&P 500 index fell 0.2% while its information technology sub-index fell 0.7%, bringing its loss for the week to over 4%. The tech-focused Nasdaq Composite was down 0.6%, after falling more than 1% earlier in the session.
The US 10-year yield, a benchmark underlying borrowing costs and equity valuations around the world, hit 1.78%, up 0.05 percentage points on the day, as bond prices were falling.
The measures came after the Department of Labor’s monthly report on non-farm wages showed the U.S. unemployment rate fell from 4.2% in November to 3.9% in December, lower than economists expected.
The average hourly wage jumped 4.7% year-on-year, against 5.1% revised upward the previous month. The increase in employment, to 199,000, far exceeded expectations of around 400,000.
This has further disrupted markets since Wednesday, when minutes from the last Fed meeting revealed officials were considering a faster-than-expected interest rate hike schedule in an effort to combat the high US inflation.
“The job market is very tight,” said Tatjana Greil Castro, co-head of public procurement at credit investor Muzinich. “Then you potentially have wage pressures, which means higher inflation, so the markets then anticipate the Fed’s financial conditions to be tighter.”
“Apart from the payroll numbers, this is a very strong employment report,” said Jack McIntyre, fixed income portfolio manager at Brandywine Global.
“It is clear that this will lead more accommodating Fed officials to the idea that they need to raise rates,” he added.
Last year’s double-digit gains for global equities were fueled by the Fed and other central banks pushing borrowing costs to record highs as they bought massive amounts of bonds from State to protect financial markets from the economic shocks of the coronavirus.
Tech stocks and other growth companies, whose valuations are flattered by low interest rates that amplify the present value of future earnings streams, were among the best performers of 2021.
“The markets are ripe for a correction, or more, at this point,” said Phillip Toews, managing director of US asset manager Toews Corporation. “The combination of rising interest rates and inflation in asset prices usually doesn’t end well. ”
Treasury bills, meanwhile, have risen in price, with the Fed more than doubling the size of its balance sheet since early 2020 to nearly $ 9 billion with purchases of government debt and mortgage-backed securities. .
Those gains reversed this week as bond markets started the year sharply lower. Investors ditched the bonds as they unwound bets placed in December that the rapid spread of the Omicron coronavirus variant could cause the Fed to wait longer before raising interest rates.
The minutes of the US central bank’s December meeting further disrupted bond markets this week, revealing that policymakers have started discussing shrinking its balance sheet.
In Europe, the regional Stoxx 600 stock index fell 0.4 percent. The 10-year German Bund yield rose 0.03 percentage point to around minus 0.03% and the equivalent Italian bond yield rose around 0.05 percentage point to 1.32%. The dollar index, which measures the US currency against six others, fell about 0.6 percent.