US stocks dropped Friday after the latest employment report showed the US labor market added jobs at a strong but slower clip in May.
The S&P 500 slipped 1% in morning trading, while the Dow Jones Industrial Average fell 156 points, or 0.5%, and the Nasdaq Composite declined 1.7%. All three indexes are on track for weekly declines.
In bond markets, the yield on the benchmark 10-year US Treasury note ticked up to 2.973% from 2.914% Thursday. Yields and prices move inversely.
US employers added 390,000 jobs last month, the slowest pace of growth since April of last year, while the unemployment rate remained 3.6%. Wages grew 5.2% on the year, down from 5.5% in April.
Economists surveyed by The Wall Street Journal expected employers added 328,000 jobs last month. And they saw the unemployment rate falling slightly to 3.5%, which would have matched a 53-year low and its level in February 2020 before the Covid-19 pandemic became widespread in the US
Federal Reserve officials are closely monitoring the state of the labor market as they decide how much and how quickly to raise interest rates in the coming months.
One point of concern for officials is that a strong labor market will add to elevated inflation as competition for workers boosts wage-bargaining power. Fed Vice Chairwoman Lael Brainard said Thursday that she supported plans to raise interest rates by a half-percentage point at a meeting later this month and again in July.
Frank Øland, global chief strategist at Danske Bank, said ahead of the report that he would be looking to see whether wages grew last month. That—plus a slowdown in hiring—could cause markets to falter, he said.
“That’s an unfortunate cocktail,” he said. “Then we have inflation getting more broad-based, and then the Fed will continue to tighten.”
Shares of Tesla fell 7% after Reuters reported that Chief Executive Elon Musk is looking to cut staff at the electric-car maker. Mr. Musk earlier this week told employees to return to the office or seek employment elsewhere.
Markets have experienced heightened volatility in recent months as investors have tried to assess a mix of variables that has clouded their outlook and added to fears of a recession.
In the past two weeks, though, some of the choppiness has eased.
Justin Wiggs, managing director in equity trading at Stifel Nicolaus, said in the past week or so he has seen the number of buy orders among his clients ticking up, something he believes directly correlates with fewer big stock-market swings.
Wall Street’s fear gauge, the Cboe Volatility Index, is trading in the mid-20s again, and the VVIX, a measure of how volatile the VIX itself is, is trading at its lowest level in two years. The VVIX is based on options prices on the volatility index.
“That the swings are getting less bad has given some people solace in the idea that maybe they can put money back to work,” said Mr. Wiggs.
A tightening of financial conditions by the Fed might dampen inflation but also risks weighing on growth and the housing market. Russia’s war against Ukraine and China’s zero-Covid policy have added to supply-chain disruptions, further stoking inflation.
Oil prices also remain above $100 a barrel, adding to the cost of energy and fuel. Futures for Brent crude, the global oil benchmark, edged up 0.4% to $118.08 a barrel.
“You have a really strong US economy now but we have this really high inflation not coming down,” Mr. Øland said. “Eventually that will bring consumers to a point where they might say let’s look at our budget and maybe tighten a bit here and there. If everyone holds back a bit, you’re moving toward recession.”
Overseas, the pan-continental Stoxx Europe 600 was roughly flat. Markets in the UK, Hong Kong and China were closed for holidays. Japan’s Nikkei 225 closed 1.3% higher, while South Korea’s Kospi added 0.4%.
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