Updated at 4;15 pm EST
Stocks finished mixed Friday, while Treasury bond yields moved sharply higher, as investors reacted to a hotter-than-expected November jobs report that would rekindle inflation concerns in the world's biggest economy.
The Dow Jones Industrial Average finished up 33 points, or 0.10%, to 34,428, while the S&P 500 lost 0.12% and the tech-focused Nasdaq was slipped 0.18%.
The Bureau for Labor Statistics said 263,000 new jobs were created last month, well ahead of the Street consensus forecast of 200,000, with hourly wages rising 0.6% on the month and 5.1% on the year.
Federal Reserve Chairman Jerome Powell said earlier this week that the job market "holds the key to understanding inflation", citing data that suggests as many as 10.3 million positions remain unfilled as of the end of October.
"The labor market is hot, hot, hot, heaping pressure on the Fed to continue raising policy rates," said Seema Shah, chief global strategist at Principal Asset Management in London. "It will not have gone unnoticed by Fed officials that average hourly earnings have steadily strengthened over the past three months, exceeding all expectations, and the absolute wrong direction to what they are hoping for."
Benchmark 10-year Treasury note yields were lower at 3.483%, while 2-year notes jumped to 4.27%. The CME Group's FedWatch suggests a 79.4% chance of a 50 basis point rate hike later this month in Washington, up from 77% prior to the data release.
Curiously, softening inflation, weakening manufacturing activity and muted private sector hiring were all in evidence this week as investor sifted through a series of readings on the health of the U.S. economy and the impact of Federal Reserve rate hikes on underlying demand.
Powell's suggesting that smaller rate hikes are likely to form the basis of the central bank's inflation fight going forward provided some decent risk sentiment, but questions over the fate of China's Covid policy, the ongoing Russian invasion of Ukraine and the odds of a near-term recession continue to test the market's bullish thesis.
That said, the S&P 500 has risen nearly 14% from its mid-October lows, a move that has effectively halved the benchmark's year-to-date decline, as investors bet that the Fed will be able to engineer a so-called soft landing for the U.S. economy.
"While Friday’s jobs report is a lagging indicator, the data still matters to confirm the future course of monetary policy," said Robert Schein, chief investment officer at Blanke Schein Wealth Management in Palm Desert, California. "The Fed needs tangible, empirical evidence to justify their policy decisions, and concrete jobs data is one metric they can point to as justification."
"With two consecutive quarters of negative GDP already booked for 2022, the U.S. has already hit the technical definition of a recession," he added. "As the U.S. economy weakens, corporate profits fall, and the yield curve remains stubbornly inverted, it’s hard to argue that we’re not in a recession. The economic data we see today is in line with recessionary environments."
Overnight in Asia, stocks ended the week modestly lower amid renewed speculation that China is reading to alter some of its stricter Covid rules, a move that could pave the way for a broader re-opening of the world's second largest economy later next year.
The region-wide MSCI ex-Japan index was marked 0.57% lower heading into the close of trading while Europe's Stoxx 600 slipped 0.69% by mid-day in Frankfurt, but the benchmark is still on pace for its seventh consecutive weekly gain.