Stocks struggle to bounce back, in choppy trading after Friday jobs report

U.S. stocks fought to gain traction higher on Friday, in a choppy session, as investors digested the September jobs report, which pointed to strength in the labor market but also underlined concerns about inflation.

Major equity indexes are coming off one of their worst sessions in months, following a surge in yields of government debt.

The Dow Jones Industrial Average DJIA, -0.28% fell 41 points, or 0.2%, to 26,586, after briefly climbing. The S&P 500 index SPX, -0.14% tilted marginally lower, off more than a point at 2,900. The Nasdaq Composite Index COMP, -0.52% sipped by 27 points, or 0.4%, to 7,851.

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For the week, the S&P 500 is looking at a decline of 0.5%, its second straight weekly decline. The Nasdaq is down 2.4%. The Dow, however, remains in positive territory, and is up 0.5% on the week. The blue-chip average has risen in six of the past seven sessions, including Friday, and it ended at a record as recently as Wednesday.

On Thursday, the Dow suffered its biggest one-day percentage drop since August, while both the S&P and the Nasdaq logged the biggest daily drop since late June.

Thursday’s downturn came as Treasury yields extended a rapid climb to the highest level since 2011, forcing a broad reassessment of assets that are seen as risky, like stocks.

The September jobs report showed 134,000 jobs added in the month, below the 168,000 that had been expected, although recent storms were seen as having a possible influence on job creation.

The report showed the unemployment rate dropping to 3.7%. In addition, average hourly wage paid to American workers rose 0.3% an hour, while the 12-month rate of hourly wage gains came in at 2.8%.

The wage data was of particular interest because of what it can communicate about inflation in the U.S. economy.

Yields continued to rise on Friday, with the U.S. 10-year Treasury note up 2.4 basis points to 3.22%. A month ago, the yield was around 2.88%.

The rise in bond yields reflects growing perception that the economy continues to be strong, which pushed investors to dump bonds. That pushed yields higher, as bond yields and prices move inversely to each other.

See also: JPMorgan strategist urges investors to stay bullish even as stocks log worst day in months

While a strong economy creates a good environment for stocks, a higher yield can also damp enthusiasm for equities, as it offers higher returns for income-seeking investors, without the risk or volatility typically associated with equities. Higher yields could also mean that the Federal Reserve may have to be more aggressive in raising interest rates, which would be seen as another headwind for stock prices.

“Wages are definitely trending higher, which is an alarming point for the market. That will likely keep the bond market under pressure, which means that yields will move higher and the dollar will continue to strength. All of that will weigh on stocks,” said Peter Cardillo, chief market economist at Spartan Capital Securities. “I’m cautiously optimistic about equities going forward, but we’re looking at a lot of volatility in the short term and I believe we’re entering a defensive market,” he said.

Michael Matousek, the head trader at U.S. Global Investors, said the payroll report offered ammunition to both market bulls and bears.

“Some people are say the unemployment rate is so low that the Fed could be more aggressive in raising rates, while others are saying that because it missed expectations, it’ll slow down. Everyone is going back and forth on what it means,” he said. “I do think that if wages keep heating up, that will give the Fed more ammunition to raise rates, and I’ll add that even if today represents a bounce from yesterday, that doesn’t mean the selloff is over.”

Costco Wholesale Corp. COST, -3.00% late Thursday said it was assessing its internal control over its financial reporting. Shares fell 2.5%.

Snap Inc. SNAP, -0.26% shares were up 0.7% a day after a memo from the chief executive set a goal of profitability for the full year of 2019. The stock has struggled throughout 2018, falling more than 46% thus far this year.

Precision Drilling Corp. PDS, -2.47% said it would merge with Trinidad Drilling in deal that values Trinidad at about $1.028 billion. The stock fell 1.2%.

General Electric Co. GE, +3.71% late Thursday said its board approved an “employment inducement award” for Chief Executive Officer H. Lawrence Culp that is contingent upon how much the stock appreciates under Culp’s leadership. The stock gained 2.9%; for the week, it is up 15%, on track for its best week since March 2009.

Canadian-based cannabis company Tilray Inc. TLRY, -1.76%announced the pricing of $450 million in convertible debt late Thursday, valuing the company’s stock at a 15% premium. The stock rose 1.9%. Tilray has been a trading favorite of late, and while the shares have been extremely volatile, it is up 65% over the past month.

Shares in Asia were mostly lower, with weakness in technology stocks dragging down the major indexes. Major European indexes were also lower, extending their recent weakness.

Crude-oil CLK9, +0.24% prices rose 0.3% while gold GCM9, +0.48% was also up 0.3%. The U.S. dollar index DXY, -0.11% gained 0.1%.

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