US stocks swayed wildly between gains and losses on Friday, under pressure from ongoing weakness from soaring tech names, while a better-than-expected job report boosted sentiment.
The S&P 500 was last up 0.5% after losing 1% earlier. The Nasdaq Composite fell 0.4% in the volatile session. At its session low, the tech-heavy benchmark fell 2.6%. The Dow Jones Industrial Average rose 200 points.
The major averages rebounded from their lows as bond yields fell from their session highs.
High valued tech stocks were hit again by rising bond yields, which continued the pattern this week. Higher interest rates reduce the present value of future cash flows and make long-term assets less attractive. Tesla fell more than 6% and Peloton shares fell more than 2%.
The Nasdaq Composite is down nearly 6% this week on its way to its worst weekly decline since March 2020 amid the depth of the pandemic. The tech-heavy benchmark also fell into the correction area on the intraday, or by 10% compared to the most recent high.
“At the moment even after a decrease of 6% [on the Nasdaq]”We still have a lot of rejection,” CNBC’s Jim Cramer told Mad Money. “People don’t want to believe the sale is real.” The market has been so good for so long, and many newer investors have never seen this kind of chubby, so the downtrend seems pretty surreal. “
The US 10-year Treasury yield surged above 1.6%, hitting a 2021 high after data showed a surge in employment growth. The rise in interest rates fueled fears that growth technology companies that led the market rally last year could struggle to meet expectations if borrowing costs rise.
Pandemic winners Peloton and Zoom Video are down 19% and 14% respectively this week. Red-hot investor Cathie Wood, who focuses on innovative companies, saw her flagship fund drop double-digit numbers this week, wiping out its 2021 profits.
The Labor Department reported Friday that the number of non-farm workers rose by 379,000 for the month and the unemployment rate fell to 6.2%. This compares with the expectations of 210,000 new jobs and the unemployment rate, which according to the Dow Jones should remain stable at 6.3% in January.
Stocks that would benefit from a quick economic comeback on the employment report provide some cushion to the overall market. The S&P 500 energy sector was up more than 1% while Occidental Petroleum was up nearly 6%. Some banks and many retailers jumped.
Friday’s moves followed a strong sell-off on Thursday triggered by comments from Fed Chairman Jerome Powell on rising bond yields. The Fed chairman said the recent attempt caught his attention, but it gave no indication of how the central bank would rein it. Some investors had expected Powell to signal his willingness to adjust the Fed’s purchase program.
The economic reopening could “put some upward pressure on prices,” Powell said in a Wall Street Journal webinar Thursday. Even if the economy “sees a temporary spike in inflation … I assume we’ll be patient,” he added.
“There are really two things that equity investors are struggling with in our conversations that they may not have looked at in the past 10 years,” said Tom Lee, co-founder of Fundstrat’s research. “One is the potential that inflation will actually have to be priced into stocks. I think there is a lot of confusion.”
“Then it’s a bond market that seems to be testing the Fed, which is terrifying,” added Lee, who believes the sell-off this week is a buying opportunity.
– CNBC’s Maggie Fitzgerald contributed to the coverage
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