Stocks wipe out week's gains
Major stock gauges tumble Friday as strong jobs report adds to Fed rate hike jitters; indexes little changed for the week.
NEW YORK (CNNMoney.com) - Stocks slumped Friday as the mix of a strong jobs report and a jump in bond yields rekindled bets that the Federal Reserve will boost interest rates for longer than previously thought.
The Standard & Poor's 500 (down 13.54 to 1,295.50, Charts) index slid 1 percent. The Nasdaq composite (down 22.15 to 2,339.02, Charts) index and the Dow Jones industrial average (down 96.46 to 11,120.04, Charts) both saw slightly smaller declines.
For the week, the S&P 500 and the Dow industrials both ended fractionally higher, while the Nasdaq closed down less than one point.
The three major gauges started higher in response to the positive March employment report, but soon turned negative as Treasury yields jumped and investors took a closer look at the jobs report.
"Once bond yields started moving higher again, investors reflected on the interest rate environment and decided to take profits off the recent highs," said Michael Sheldon, chief market strategist at Spencer Clarke.
Treasury prices fell, pushing the yield on the benchmark 10-year note up to 4.98 percent -- a fresh four-year high and well within sight of the key 5 percent level -- from 4.89 percent late Wednesday. Bond prices and yields move in opposite directions.
The dollar gained versus other major currencies, oil and gold prices fell.
As a result of the recent advance, on Thursday, the Nasdaq closed at its highest level since February 2001. On Wednesday, the S&P 500 closed at its highest level since May 2001. The Dow hit 4-1/2 year highs in March and is not far below those levels now.
"The bond market finally caught up with the stock market," Sheldon said.
Jobs report sparks rate-hike jitters
The unemployment rate, generated by a separate survey, fell to 4.7 percent in March, from 4.8 percent in February. Economists thought it would hold steady at 4.8 percent.
Helping to stem concerns about wage inflation -- a key measure the Federal Reserve has said it is watching -- was the average hourly earnings component of the report. Earnings rose a smaller-than-expected 0.2 percent after rising 0.3 percent in February. Economists thought it would rise 0.3 percent.
The focus on the average hourly earnings gave a lift to stocks and kept bonds little changed in the early going.
But the tone turned decidedly negative as investors weighed the underlying strength in the job report and what that might mean for the Fed's rate hiking campaign.
"What really got everyone's attention was the decline in the unemployment rate," said Stephen Stanley, chief economist at RBS Greenwich Capital.
He said that the decline, combined with the continued strength in job growth was adding to bets that the economy is strengthening.
"If the economy keeps growing at a faster pace, the Fed may need to boost rates for longer than what markets are currently expecting," Stanley said. "I think that's what the stock and bond markets are reacting to right now."
The fed funds rate, a key overnight bank lending rate, currently stands at 4.75 percent. The Fed has lifted the rate in quarter-percentage point increments 15 times in a row since June 2004.
Stocks on the move
Oil stocks followed suit. The Philadelphia Oil Service (Charts) sector index lost 1.8 percent.
Blue-chip declines were broad-based, with 27 out of 30 Dow components sliding, led by Hewlett Packard (down $0.73 to $33.37, Research), AIG (down $1.06 to $64.38, Research), IBM (down $1.33 to $82.48, Research) and Pfizer (down $0.40 to $24.69, Research).
Techs got hit hard too. The influential chip sectors slipped, weighing on the Nasdaq.
The Philadelphia Semiconductor (down 9.67 to 514.94, Charts) index, or the SOX, lost 1.8 percent.
Web stocks slipped too, sending the Goldman Sachs Internet (Charts) index down by 1.4 percent.
Research in Motion (down $4.60 to $79.78, Research) slumped after it issued current-quarter forecasts for earnings, sales and subscriber growth that fell short of Wall Street forecasts. The maker of the Blackberry wireless device also reported in-line earnings late Thursday, but investors focused on the warning.
Market breadth was negative. On the New York Stock Exchange, losers topped winners by more than four to one on volume of 1.52 billion shares. On the Nasdaq, decliners beat advancers by over two to one on volume of 2.03 billion shares.
Inflationary worries sapped blue-chip stocks Thursday, as investors worries about bond yields near 4-year highs, gold near a 25-year high and oil prices near $68 a barrel.
COMEX gold for June delivery fell $7 to $592.70 an ounce, after topping $600, the highest since 1981, the previous session.
The dollar rose versus other major currencies.
For more on the markets, click here.