Dow briefly sheds 200 after jobs report; Fed eyed

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finance.yahoo.com

By Fred Imbert 

U.S. equities fell on Friday as mixed U.S. employment data raised concerns that the Federal Reserve may raise rates this year.

The U.S. economy added 151,000 jobs in January, the Bureau of Labor Statistics said Friday. Economists were expecting a gain of 190,000. The unemployment rate, however, fell to 4.9 percent from 5.0 percent, while wages rose 0.5 percent.

The jobs report raised the odds of another Federal Reserve rate hike, said Arne Espe, senior portfolio manager at USAA Investments. 

"We're back to pricing in a 50 percent chance for a rate hike in December," he said. " We were at less than 50 percent before the report."

The central bank hiked interest rates for the first time in nine years in December.

"It's all about that wage number, and that the 151,000 number is still indicative of growth," said Peter Cardillo, chief market economist at First Standard Financial. 

"[Wages] could be a sticking point for the Fed."

The three major indexes opened slightly lower, with the Dow Jones industrial average briefly trying for gains, before falling 200 points in late-morning trading.

The S&P 500 index dropped over 1 percent, as information technology fell nearly 2 percent. 

The Nasdaq composite fell more than 1.5 percent, as Apple and the iShares Nasdaq Biotechnology ETF (IBB) fell 1.5 percent and 2.5 percent, respectively.

"This is a classic example of why the headline looks worse than the actual report," said Art Hogan, chief market strategist at Wunderlich Securities. "The key components of this report were positive."

He noted that average hourly earnings, average hours worked and labor force participation all rose last month.

Recent U.S. economic data has been mixed and, coupled with falling oil prices, have contributed to rising fears of a recession.

However, Glassdoor Chief Economist Andrew Chamberlain said "if we're going into a recession, the first thing firms will do is stop hiring."

"There is no evidence of that," noting that the number of job openings is still high. 

"I always feel it's best to smooth out the monthly gyrations of payroll data and today's number brings the 3 month average to 222k, the 6 month average to 212k and the 12 month average to 214k. Thus, let's call it steady state notwithstanding this one month miss," Peter Boockvar, chief market analyst at The Lindsey Group said in note.

Another data set released Friday was the U.S. trade deficit, which widened in December amid a rising dollar and a weak global demand.

Investors also kept a close eye on oil prices. U.S. crude (New York Mercantile Exchange: @CL.1) held near the flatline in late-morning trading, at $31.72 a barrel, after falling more than 2 percent at session lows.

"Anything above $30 will be constructive [for U.S. stocks]," Wunderlich's Hogan said. However, he also said, if prices broke below the $30 mark, they would weigh on the broader equities market.

U.S. oil rig count data is due Friday at 1 p.m. ET. 

The dollar rallied on the U.S. jobs report, with the euro (Exchange:EUR=) falling about 0.6 percent to $1.11, and the yen (Exchange:JPY=) holding near 117.15.

U.S. Treasurys fell on the report, pushing the benchmark 10-year yield higher to 1.88 percent. Two-year yields also rose to 0.75 percent.

Gold futures for April delivery dropped $3 to $1,154.50 an ounce. However, USAA's Espe said long-term "it's more likely that gold will be much higher relative to the dollar" as equities around the world have entered a bear market.