By Yasin Ebrahim
Investing.com -- The Dow racked up gains late into the close to end higher Friday, on a jump in banking and energy stocks, but surging Treasury yields following a blowout jobs report weighed on tech keeping gains in the broader market in check.
The Dow Jones Industrial Average rose 0.23%, or 76 points, the Nasdaq was down 0.50%, and the S&P 500 fell 0.18%.
The U.S. economy added 528,000 new jobs in July, topping consensus for 250,000 new jobs in June, while the unemployment rate unexpectedly fell to 3.5%.
The jobs report also flagged an uptick in wage pressures that will likely keep inflation elevated, and give the Federal Reserve the green light to continue front-loading rate hikes.
Traders are betting the Federal Reserve’s peak interest rates, or the so-called terminal rate, is at 3.6%, but this won’t be enough to stem inflation given the strong labor market, Jefferies said.
“The terminal rate currently priced into the curve looks woefully inadequate. We expect the Fed to keep hiking through Q1’23 until they push the funds rate to 4-4.25%,” Jefferies added.
If the Fed turns more hawkish than expected, “the market will take that as a big negative, because right now it's pricing in a Fed funds rate that is nearer to the end of cycle,” Chief Market Strategist David Keller at StockCharts told Investing.com in an interview on Friday.
Two-year U.S. Treasury yields, which are sensitive to Fed rate hikes, jumped to its highest level in nearly two months. The 10-year yield also soared, rising more than 6%.
Growth sectors of the market, which tend to be unattractive in a rising rate environment, were the hardest hit with big tech and consumer discretionary stocks leading the downside.
Tesla (NASDAQ:TSLA) led the move lower in consumer stocks, down 6% after shareholders backed the company’s proposed 3-for-1 stock split.
Energy rose 2% to pare some losses from a day earlier as oil prices rebounded as fears about a recession hurting demand eased following the stronger jobs report.
Banking stocks including JPMorgan Chase & Co (NYSE:JPM), meanwhile, led financials higher as rising rates tend to support lending margins.
The earnings front, meanwhile, served up mixed quarterly results with LYFT the standout performer on the day following stronger than expected earnings.
LYFT (NASDAQ:LYFT) jumped 16% after the ride-hailing company reported a surprise quarterly profit as demand jumped to pre-pandemic levels.
AMC Entertainment (NYSE:AMC) reported a slightly wider-than-expected quarterly loss and announced that it would issue dividend to all common shareholders in the form of preferred shares. Its shares jumped nearly 19%.
The move in effect “creates a two-for-one stock split, with half listed under 'AMC' and half under 'APE' [stock ticker],” Wedbush said.
Block (NYSE:SQ) fell 2% despite delivering quarterly results that beat on both the top and bottom lines as a 34% decline in bitcoin revenue held back growth.