U.S. stocks fell on Friday at the end of a rough week for markets, which have tumbled this week after a spike in rates to begin the year, mixed economic data and concerns about Fed tightening.
The Dow Jones Industrial Average fell 101 points, or 0.2%. The S&P 500 lost 0.6%, and the Nasdaq Composite fell 1.2%.
All of the major averages are on pace for a losing week. The Dow is down just 0.5% for the week, while the S&P has lost 1.3%. The tech-heavy Nasdaq has fallen 3.2%, and is on track for its worst week since February 2021 as investors rotate out of growth and into value names.
Tech stocks lost ground on Friday as yields rose, continuing a theme of the week of investors rotate out of the sector.
Chipmakers Nvidia and Microchip Technology were among the biggest decliners in the Nasdaq, both down about 3%. Netflix fell about 2% and Twilio lost about 3%.
On Friday the Labor Department reported the U.S. economy added far fewer jobs in December than expected. The nonfarm payrolls report showed an increase of 199,000 in December, though economists had expected growth of 422,000, according to Dow Jones.
While the headline number disappointed, there were some things in this jobs report that pointed to an improving economic picture and higher inflation. Average hourly earnings increased by 0.6%, above expectations. And the unemployment rate fell to 3.9%, the lowest level since Feb 2020 and well below the 4.1% expected.
That appeared to be what bond investors were focusing on as they sent yields higher again on Friday. The 10-year Treasury yield topped 1.76% on Friday, continuing its amazing 2022 run from a 2021 year-end level of 1.51%. The move higher, which began earlier in the week when it punched above 1.70%, hit growth-oriented areas of the market, since promised future profits start to look less compelling.
Those stocks were already sliding this week as a result. Software companies were among the hardest hit, with Salesforce, Adobe and Twilio all down about 10% for the week. Nearly all megacap tech stocks were set for a losing week. Netflix has lost 9% for the week, Microsoft has fallen 7% and Alphabet is down about 5%.
“Those names, because they’ve grown so big, haven’t have an outsized impact on index move,” Buchanan said of large cap growth stocks. “But when those names hit pockets of weakness, they tend to weigh down the market in ways that historically haven’t happened before because the market has never been this top heavy.”
Elsewhere, GameStop shares jumped more than 6% following news that the company is venturing into the crypto world with investments in a marketplace for nonfungible tokens and digital currency partnerships to create games and other items.
Stocks this week were also reacting to the minutes of the Federal Reserve’s December meeting, which showed the central bank is ready to dial back its economic help at a faster rate than some had anticipated.
“A shift in Fed policy often injects volatility into markets,” said Keith Lerner, chief market strategist at Truist. “Stocks have generally had positive performance during periods where the Fed is raising short-term rates because this is normally paired with a healthy economy.”
“The dip in stocks seems a bit overdone,” added UBS Global Wealth Management in a note to clients. “The normalization of Fed policy shouldn’t dent the outlook for corporate profit growth, which remains on solid footing due to strong consumer spending, rising wages, and still-easy access to capital.”