Stocks close mixed after strong jobs report adds fuel to Fed plan to hike interest rates

Stocks ended the day mixed Friday, while bond yields rose, after a surprisingly strong hiring surge last month raised investors' expectations of an interest rate hike by the Federal Reserve.

Job growth around the U.S. was robust in January with employers adding 467,000 new hires, surprising many economists who had forecast that the COVID-19 wave caused by the Omicron variant would dampen payrolls last month. 

The S&P 500 slipped 0.1% in the early going Friday, but was back up by nearly as much as of noon Eastern time, ending the day up by .5%. The Dow dropped 0.06% and the tech-focused Nasdaq composite rose 1.6%.

Friday's moves followed a tumultuous Thursday, when the S&P 500 fell 2.4%, its biggest drop in nearly a year, weighed down by the 26.4% wipeout in Meta Platforms, as Facebook's owner is now known, on news that nearly two decades of explosive growth in its core social media business may have peaked. 

Meta's mauling erased more than $230 billion in market value, easily the biggest one-day loss in history for a U.S. company. The stocks of Twitter and other social media companies also fell, and the Nasdaq gave up 3.7%, its biggest loss since September 2020.

"The jobs report blew away expectations across the board," Cliff Hodge, chief investment officer for Cornerstone Wealth, said in an email. "The report is unequivocally good for the economy, but not for markets as the strength in the numbers presents another data point which supports more aggressively hawkish Fed action" against rising inflation.

Rate hikes incoming

The Federal Reserve has signaled it is ready to start boosting its short-term interest rate in March from its current level of close to zero. As a result, Americans are likely to find themselves paying more for loans and credit this year.

Wall Street analysts have speculated the central bank will lift rates three or four times this year, with each increase boosting the benchmark federal funds rate by 0.25%, or even 0.5% increases if the highest inflation in 40 years persists and the Fed decides to slam on the brakes to cool a heating economy. The January jobs report has raised those expectations for some.

"The Federal Reserve is going to be forced to raise rates more quickly and to a higher level, as wage growth jumped up to 0.7% on a month-over-month basis," Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said in an email, in reaction to the government's latest jobs report. 

Other analysts, however, remain skeptical. "The report will undoubtedly add to speculation that the Fed will tighten by [0.5 percentage points] in March, although we still think officials are unlikely to move that aggressively with the first change in a tightening cycle," analysts at TD Securities reported.