US Stock Indexes Erratic Friday 03/05 11:55
Stocks are swerving through another rocky ride Friday, as investors struggle
to figure out what an encouraging report on the economy and the recent march
higher for bond yields should mean for the market.
NEW YORK (AP) -- Stocks are swerving through another rocky ride Friday, as
investors struggle to figure out what an encouraging report on the economy and
the recent march higher for bond yields should mean for the market.
The S&P 500 was 0.4% higher in early afternoon trading, though the modest
move belies sharp swings from earlier. At the start of trading, it had jumped
to an immediate 1% gain, only for it all to disappear within a half hour and
disintegrate into a 1% loss.
Other stock indexes went through similar zigzags. The Dow Jones Industrial
Average was up 181 points, or 0.6%, at 31,105, as of 12:30 p.m. Eastern time,
after swinging between a gain of 334 points and a loss of 157. The Nasdaq
composite was 0.3% lower after flipping from a gain of 1.2% to a loss of 2.6%.
The spark for all the uncertainty was a government report that showed
employers added hundreds of thousands more jobs last month than economists
expected. That's an encouraging sign for the economy, and it helped lift
Treasury yields, with the closely watched 10-year yield momentarily topping
The yield later fell back, down to 1.56% in early afternoon trading. That's
still higher than the 1.55% it was at late Thursday and the roughly 0.90% level
that it was at during the end of last year.
For about a year, the stock market kept climbing on expectations that an
economic recovery was on the way, even when the coronavirus pandemic meant
conditions at the time seemed very bleak. Now that the recovery is much closer
on the horizon, the market is unsettled because one of the main underpinnings
for that incredible run is under threat: ultralow interest rates.
Yields have been marching higher with rising expectations for the economy's
growth and for the inflation that could accompany it. Economists have been
upgrading their forecasts for this year as more people get COVID-19 vaccines,
businesses reopen and Congress gets closer to pumping another $1.9 trillion of
financial aid into the economy.
The worry is that inflation could take off, or something else could happen
to jack yields up even further.
It's the speed at which Treasury yields have climbed that has gotten Wall
Street so uncomfortable, more than the actual level, which is still low
relative to history. The S&P 500 is on track to close out its third straight
losing week after setting its record high on Feb. 12.
Higher yields put downward pressure on stocks generally, because they can
steer away dollars that had been headed for the stock market and into bonds
The pressure is most intense on stocks that look the most expensive,
relative to their profits, as well as those bid up on expectations of fast
growth far into the future. Critics say most stocks across the market look
expensive after prices climbed much, much faster than profits, and warnings
about a possible bubble have been on the rise.
But tech stocks and other high-growth companies in particular have been at
the center of the downdraft. They soared more than the rest of the market for
much of the pandemic, and in the years preceding it. On Friday, Tesla, Amazon
and Apple were three of the heaviest weights dragging on the S&P 500.
It's another reminder of how dominant Big Tech stocks have become in the
market. If inflation does ultimately remain under control, as the Federal
Reserve's chair and many economists expect, the general expectation along Wall
Street is that most stocks could benefit.
A stronger economy would mean bigger profits for companies, which would
allow their prices to hold steady or rise, even if rates are climbing.
The majority of stocks in the S&P 500 were rising in Friday afternoon
trading, with energy producers making some of the largest gains. Diamondback
Energy jumped 6.4%, and Chevron gained 3.3% after oil prices rallied more than
Tech stocks would likely also see some improvement in their profits, just
not to the same degree as companies whose businesses are closely tied to the
strength of the economy, such as banks or travel companies.
But Big Tech stocks have grown so big that their movements can mask what's
going on in the broad market. Five Big Tech stocks alone make up more than 21%
of the S&P 500 by market value, so weakness for tech can hold back S&P 500
index funds even if many stocks within it are rising.
All the big movements in the bond market have increased attention on the
Federal Reserve, whose chair said this week that he's noticed the recent climb
in yields. He disappointed some investors when he didn't offer anything more
forceful that could cap the rise. That has anticipation building for the Fed's
next policy meeting, a two-day session that ends March 17, and whether Powell
will offer any more guidance on what moves the Fed may make next.