U.S. Stocks Give Back Ground As Strong Jobs Data Renews Interest Rate Concerns

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Stocks recovered from initial weakness but showed a significant move back to the downside over the course of the trading session on Friday. With the pullback on the day, the Nasdaq and S&P 500 gave back ground after moving sharply higher for three straight sessions.

After ending Thursday's trading at nearly five-month closing high, the Nasdaq tumbled 193.86 points or 1.6 percent to 12,006.95. The S&P 500 also slumped 43.28 points or 1.0 percent to 4,136.48, pulling back off its best closing level in over five months.

The narrower Dow showed a more modest decrease on the day, with the blue chip index falling 127.93 points or 0.4 percent to 33,926.01.

Despite the pullback, the Nasdaq surged 3.3 percent for the week and the S&P 500 jumped by 1.6 percent. Meanwhile, the Dow edged down by 0.2 percent.

The weakness on Wall Street partly reflected renewed concerns about the outlook for interest rates following the release of much stronger than expected jobs data.

The Labor Department's closely watched monthly jobs report said non-farm payroll employment soared by 517,000 jobs in January after surging by an upwardly revised 260,000 jobs in December.

Economists had expected employment to increase by 185,000 jobs compared to the addition of 223,000 jobs originally reported for the previous month.

The report also said the unemployment rate edged down to 3.4 percent in January from 3.5 percent in December. The dip surprised economists, who had expected the unemployment rate to inch up to 3.6 percent.

With the unexpected decrease, the unemployment rate dropped to its lowest level since hitting a matching rate in May 1969.

While the report points to continued strength in the labor market, the data has led to concerns the Federal Reserve will raise interest rates higher than currently anticipated.

"The surprisingly, strong across-the-board January employment report shows that labor demand remains too hot for the economy's own good and will embolden the Fed to raise rates more not less," said Nationwide Chief Economist Kathy Bostjancic.

"We had been looking for a peak in the Fed funds target range of 5% - 5.25%, but the risks are now that they might need to do more," she added. "At the minimum, this should dampen the market's expectation for rate cuts in the second half of the year."

Earlier in the session, the negative sentiment was partly offset by upbeat service sector data, which generated optimism the economy could be headed for a soft landing.

The report from the Institute for Supply Management showed service sector activity rebounded by much more than expected in the month of January.

The ISM said its services PMI jumped to 55.2 in January from a revised 49.2 in December, with a reading above 50 indicating growth. Economists had expected the index to inch up to 50.4 from the 49.6 originally reported for the previous month.

Meanwhile, a negative reaction to earnings news from tech giants Google parent Alphabet (GOOGL) and Amazon (AMZN) also weighed on the markets, while Apple (AAPL) moved higher despite reporting weaker than expected quarterly results.

Sector News

Gold stocks turned in some of the market's worst performances on the day, dragging the NYSE Arca Gold Bugs Index down by 4.1 percent to its lowest intraday level in a month.

The sell-off by gold stocks comes amid a steep drop by the price of the precious metal, with gold for April delivery plunging $54.20 to $1,876.60 an ounce.

Substantial weakness was also visible among retail stocks, as reflected by the 3.8 percent slump by the Dow Jones U.S. Retail Index.

Airline stocks also saw significant weakness after Thursday's rally, resulting in a 3.1 percent nosedive by the NYSE Arca Airline Index. The index pulled back off its best closing level in almost eight months.

Software, utilities and housing stocks also showed notable moves to the downside amid broad based weakness on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Friday. Japan's Nikkei 225 Index rose by 0.4 percent, while China's Shanghai Composite Index fell by 0.7 percent.

The major European markets also finished the day mixed. While the German DAX Index dipped by 0.2 percent, the French CAC 40 Index advanced by 0.9 percent and the U.K.'s FTSE 100 Index jumped by 1.0 percent.

In the bond market, treasuries moved sharply lower in reaction to the monthly jobs data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, surged 13.6 basis points to 3.532 percent.

Looking Ahead

Following a number of key economic events this past week, the economic calendar for next week is relatively quiet.

Earnings news may subsequently attract increased attention, with a number of well-know companies due to report their quarterly results.

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