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U.S. stocks fall for second day because ‘good news is bad news’ after strong jobs report

MarketWatch logo MarketWatch 2/6/2023 William Watts
© AP

U.S. stocks suffered a second day of losses Monday, after an unexpectedly strong jobs report at the end of last week renewed worries about how high the Federal Reserve will have to take interest rates.

What happened
  • The Dow Jones Industrial Average finished with a loss of 34.99 points, or 0.1%, at 33,891.02, after dropping 242 points at its session low.
  • The S&P 500 fell 25.40 points, or 0.6%, to close at 4,111.08.
  • The Nasdaq Composite ended with a loss of 119.50 points, or 1%, at 11,887.45.

Stocks fell Friday, but the Nasdaq Composite advanced for a fifth straight week, while the S&P 500 saw back-to-back weekly gains. The Dow fell 0.2% last week.

What drove markets

There continued to be shock over the 517,000 surge in nonfarm payrolls reported by the Labor Department on Friday.

“With a better-than-expected jobs report on Friday, good news is bad news for the market,” said Mark Hackett, chief of investment research at Nationwide. In other words, strong jobs data is bad news for stocks because it boosts expectations the Federal Reserve will need to move rates higher for longer to combat inflation.

Meanwhile, a round of buying led by short covering from hedge funds and others seen last week runs the risk of leaving them on the wrong foot.

“For institutional investors who have been predominately on the sidelines, the rush to exit losing positions late last week was too much too soon,” Hackett said. “They risk reverting to bearish positions as soon as the market pulls back. With so much emotion driving institutional investors, retail investors seem calm and measured by comparison.”

The yield on the 10-year Treasury rose 10.1 basis points to 3.632%. Fed-funds futures reflected increased bets the Fed will deliver a 25 basis point increase in May after a widely expected hike of the same magnitude in March. The Fed last week hiked the fed-funds rate by 25 basis points to a range of 4.5% to 4.75%.

Read: How a hot jobs report ‘moved the goal post’ on interest-rate expectations

The dollar was also extending a bounce from late last week, with the ICE U.S. Dollar Index up 0.7%.

See: How the U.S. dollar could put this stock-market rally to a big test

Federal Reserve Chair Jerome Powell will have the opportunity to react on Tuesday when he delivers a speech to the Economic Club of Washington.

Traders also were reacting to the political rift between the U.S. and China after President Joe Biden ordered a balloon to be shot down. China has said the balloon was to monitor the weather, not for spying, and had been blown off course. The Hang Seng dropped 2%.

Meanwhile, so-called meme stocks were on a tear Monday, led by a 92.1% gain by Bed Bath & Beyond Inc. even as the retailer indicated it has missed payments to debtholders and could file for bankruptcy. GameStop Inc. jumped 7.2% and AMC Entertainment Holdings Inc. advanced nearly 12%.

Companies in focus
  • Shares of Tesla Inc. rose 2.5% Monday, after Wedbush raised its price target, saying China demand has swung to a “tailwind” from a “headwind.”
  • Dell Technologies Inc. said Monday it plans to shed 5% of its workforce. The company disclosed the cuts in a note to employees, which was also filed with the Securities and Exchange Commission Monday morning. Shares fell 3%.
  • Shares of Tyson Foods Inc. fell 4.6% after the meat processor and parent to brands including Jimmy Dean and Hillshire Farm missed consensus estimates for its fiscal first quarter by a wide margin.
  • Cummins Inc. shares declined 2% after the engines and powertrains maker reported fourth-quarter sales that rose above expectations and provided an upbeat outlook.
  • Public Storage made an $11 billion unsolicited offer for its smaller rival Life Storage Inc. attempting again to buy its smaller rival after an earlier bid was rejected. Life Storage shares jumped 11.3%, while Public Storage shares edged down 0.2%.

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