US stocks end 3rd straight week lower on interest rate fears

The US stock market took another hit, with the tech Nasdaq Composite dropping 1.3%, its sixth consecutive day of declines and the longest streak in more than three years.

The S&P 500 index of blue chips fell 1.1% on Friday and fell 3.3% for the week. The S&P 500 and Nasdaq have fallen for three straight weeks.

The move comes after US Department of Labor data showed a slight rise in the unemployment rate and a slowing pace of job growth, from 526,000 the previous month to 315,000 in August. The details have failed to allay concerns that the Federal Reserve will continue to raise interest rates sharply to combat inflation.

In recent months, with closely scrutinized jobs data giving clues as to how aggressively the Fed will tighten monetary policy, a hot labor market has pushed interest rate hikes to widen and accelerate. It shows that expectations are being spurred.

Conversely, signs of slowing hiring activity have helped lower expectations about how far the Fed will choose to raise borrowing costs.

“The labor market is heading in the right direction for policymakers,” said Jeffrey Roach, chief economist at LPL Financial. It means we are not under pressure.”

Stocks initially rose on news of the jobs report, but by mid-morning began to reverse those gains. The decline accelerated around lunchtime in New York after Russia’s state-owned energy group Gazprom announced it would shut down its Nordstream gas pipeline indefinitely, possibly exacerbating the strain on Europe’s energy supply.

“The news that Russia will keep the Nord Stream pipeline closed due to a ‘mechanical problem’ (which was supposed to resume deliveries tomorrow) [stocks] We’re back in the red,” wrote Citi strategist Bill O’Donnell.

Three weeks after Chairman Jay Powell reiterated the central bank’s commitment to keep inflation down at the Fed’s annual symposium in Jackson Hole last week, saying, “We have to keep doing it until the job is done.” of U.S. stocks gained momentum.

Expectations for a Fed rate hike cooled slightly after Friday’s employment report. Federal funds futures trading suggests the market expects the central bank to raise the key rate to his 3.83% by March 2023. However, it will rise significantly from the Fed’s current target range of 2.25% to 2.50% and have broader implications for the US economy.

Line Chart of Implied Federal Funds Rate (%) for March 2023

Bets on the size of the Federal Reserve’s next rate hike in September have dropped slightly, but overall expectations remain closer to 0.75 percentage points than 0.5 percentage points.

Rick Rieder said: “Employment growth is slowing modestly as the doors to jobs are closing, but the Fed’s top priority is to keep the current inflation rate down. It is clear that the pace is sufficient to open the door for the pursuit of Chief Investment Officer of BlackRock’s Global Fixed Income Division.

In the Treasury market, the 10-year US Treasury yield fell 0.6 points to 3.2%. His policy-sensitive 2-year yield fell 0.1 percentage point to 3.4%, reaching his highest in 15 years this week. When bond prices fall, bond yields rise.

Elsewhere, European stocks rose after the release of jobs data, with the regional Stoxx 600 index up 2%, ending a five-day streak of declines.

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