Wall Street Drops On Job Growth Concerns Of Rate Hikes

The New York Stock Exchange ended down on Friday February 3, stunned by disappointing corporate results and taken aback by a much higher than expected US job creation figure, raising fears of further key rate hikes.

The Dow Jones fell 0.38%, the Nasdaq index lost 1.59% and the broader S&P 500 index lost 1.04%.

Wall Street jumped on reading the monthly report on US employment, which revealed 517,000 job creations in January, nearly triple the projections of the economies (187,000).

The unemployment rate fell to 3.4%, its lowest level since 1969.

“Traders fear that the Fed’s (US Central Bank) journey to price stability will take longer than anticipated, or even longer than the Fed itself thought,” said Quincy Krosby of LPL Financial.

Employment Report

The employment report was followed by another indicator, the ISM services activity index, which rose 55.2% in January against 49.2% in December.

The two macroeconomic benchmarks for Friday, February 3 “offer the Fed flexibility to continue raising rates,” said Daniel Vernazza of UniCredit in a note.

Operators are now banking on two increases of a quarter point each in March and May, at the next two meetings of the Central Bank, before a break, while they have so far favored a single increase by the summer. .

The sequence catapulted bond rates. The yield on two-year US government bonds, which reflects more than the ten-year rate the market’s view of monetary policy, rose to 4.28%, against 4.10% the day before closing.

The prospect of more marked monetary tightening poses the threat of a sharp deceleration in the economy, unfavorable to equities.

If the slowdown is slow to fully materialize in the United States, the New York market can already see its effect in the publications of companies, many of which are at half mast.

The three tech giants which published their quarterly results Thursday, February 2 after the stock market thus all posted a net profit below analysts’ forecasts.

Amazon (-8.43% to 103.39 USD) suffered from the slowdown in its remote computing activity (cloud), which had been driving the performance of the Seattle group for several years.

Alphabet (-3.29% to 105.22 USD) suffered from the darkening of the online advertising market, the video platform YouTube (-7.7%) being particularly affected.

Apple (+2.44% to 154.50 USD) did well, with analysts attributing its failure in the last three months of 2022 to the setbacks of its main iPhone assembly plant in Shengzhou (China) , victim of an outbreak of COVID-19 cases.

Elsewhere in the tech sector, semiconductor maker Qualcomm (-0.61% to $135.02) also missed the target last quarter, and expects an even steeper deceleration at the start of the year.

But the disappointments were not limited to the new economy.

Ford was penalized (-7.61% to 13.23 USD) for its quarterly results below expectations, penalized by supply problems and cost increases.

As for the Starbucks coffee chain (-4.44% to 104.30 USD), it certainly achieved a record turnover in the first quarter of its staggered fiscal year (October to December), but below the projections of the analysts.

Despite this avalanche of indigestible news for investors, the indices limited their losses at the end of the session.

“Seeing some profit-taking in a market that has gained 15% since the start of the year (for the Nasdaq) is not necessarily unreasonable,” explained Angelo Kourkafas of Edward Jones.

The indicators for Friday, February 3 “do not call into question the fact that inflation is slowing down”, he estimated. However, they testify to a job market in full health, “which takes us away from the worst economic scenarios” in 2023.

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