By Corrie Driebusch And Min Zeng
U.S. jobs data roiled financial markets from stocks to bonds to
the euro after robust employment growth solidified expectations for
a Federal Reserve rate increase as soon as June.
Employers added 295,000 jobs in February, topping expectations
for a 240,000 rise among economists surveyed by The Wall Street
Journal. The jobs data reinforced views among many investors that
the economy is doing well enough to survive a Fed rate rise after
years of stimulus efforts.
But the prospects of higher rates was seen as bad news among
some investors who see Fed easy-money policies as having been a
major prop for the stock market. It also was seen as unfavorable
for the euro, as higher rates in the U.S. make the U.S. dollar a
more attractive investment than the common currency, as the
European Central Bank embarks on an aggressive easing effort.
Traders said the flow of money out of the stock market on Friday
was largely driven by hedge funds and other big investors who make
decisions based on broad economic trends rather than the outlooks
for individual companies.
The Dow Jones Industrial Average posted its biggest loss since
late January, as the blue-chip index dropped 278.94 points, or
1.5%, to 17856.78. The S&P 500 shed 29.78 points, or 1.4%, to
2071.26. The Nasdaq Composite Index slid 55.44 points, or 1.1%, to
4927.37.
Despite the selloff in stocks, which came just four sessions
after the Dow industrials and S&P 500 hit records, investors
said the broad outlook didn't change much. Many investors still
believe the Fed could hold off until later in 2015 to begin raising
interest rates, and that any tightening of monetary policy will be
slow and well-telegraphed as long as inflation pressures stay
low.
At the same time, investors say a healthier economy should help
boost corporate profits and provide support for stocks, even if
interest rates do move moderately higher.
"This is one of those instances of good news being reacted to as
bad news," said Matthew Rubin, director of investment strategy for
Neuberger Berman.
For bonds, the stronger economic news suggested the Fed is more
likely to move ahead with its rate increases, pushing down Treasury
prices. The 10-year Treasury note had its biggest one-day selloff
since November 2013, with its yield soaring to 2.239%, the highest
closing level since Dec. 26, compared with 2.110% on Thursday.
Yields rise as bond prices fall.
Investors such as hedge funds and portfolio managers shed
holdings, amid worries that higher interest rates from the central
bank would undermine the value of outstanding bonds.
Traders said the selloff reminded them of the "taper tantrum"
during the summer of 2013 when the bond market was rattled by
concerns of a pullback in the Fed's bond-buying program.
"The selloff is seriously ugly and quite bloody," said
Christopher Sullivan, who oversees $2.45 billion as chief
investment officer at the United Nations Federal Credit Union. "The
U.S. economy is poised to continue to be on an upward slope. A rate
increase in June cannot be ruled out."
Still, federal-funds futures, used by investors and traders to
place wagers on central bank policy, didn't suggest a significant
change in the betting on exactly when the Fed will start raising
rates.
Fed-funds futures showed Friday that investors see a 22%
likelihood of a rate increase in June, compared with 16% a day
earlier and 24% a month ago, according to data from CME Group Inc.
The chances of a rate increase at the September Fed meeting were
64% on Friday, compared with 51% on Thursday.
In currency markets, the jobs data led to big price swings. The
euro fell to its lowest level against the U.S. currency since
September 2003, plunging 1.7% in late-afternoon trading to $1.0843,
compared with $1.1030 late Thursday.
The dollar jumped to a two-month high against the yen, rising
0.6% to Yen120.84, compared with Yen120.13 late Thursday. The Wall
Street Journal Dollar index, which pits the greenback against a
basket of widely traded currencies, vaulted 1.1%, to its highest
level since April 2003.
Meanwhile, the jump in bond yields had an additional ripple in
the stock market, as investors sold shares in utility companies, a
group that has been popular in the low-interest-rate environment
because of such companies' steady dividend payments. The S&P
500's utility sector declined 3.1% Friday, making it the
worst-performing segment on the day.
In other markets, U.S. oil prices fell sharply. Light, sweet
crude for April delivery, the front-month contract, dropped $1.15,
or 2.3%, at $49.61 a barrel on the New York Mercantile
Exchange.
Gold prices fell, with the front-month contract, for March
delivery, declining $31.80, or 2.7%, to settle at $1,164.10 a troy
ounce on the Comex division of Nymex.
Write to Corrie Driebusch at corrie.driebusch@wsj.com
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