Stocks wobbled and bond yields rose on Friday after the government’s jobs report showed a bigger-than-expected hiring gain in June, a positive development for the labor market but a sign that high inflation could persist.
The better-than-expected jobs numbers could allay some concerns about an impending economic slowdown, but with prices rising rapidly, a robust labor market and rising wages could complicate the Federal Reserve’s fight against inflation . If the central bank continues to raise interest rates aggressively to contain stubbornly high inflation, it could eventually tip the economy into a recession.
The S&P 500 swung between small losses and gains on Friday and finished slightly lower. Friday’s trading followed four consecutive daily increases, a rare streak during a period when the predominant direction has been bearish. The index fell nearly 21% in the first half of the year, its worst start to the year since 1970.
Away from the labor market, other economic signals, ranging from retail sales to housing to copper prices, reflect an economic slowdown already underway, lending credibility to some analysts’ recession warnings.
“On the face of it, job growth of more than 300,000 a month does not indicate a recession,” said Michael Gapen, head of U.S. economics for Bank of America. But the Fed is trying to bring inflation down, “and it will have to do that by turning to tighter monetary policy,” he said, suggesting more interest rate hikes to come.
The yield on the 10-year Treasury note, a benchmark for borrowing costs, jumped to just over 3% after the jobs report was released. But the 10-year yield remained moderately lower than the two-year yield, creating a so-called inverted yield curve, a rare signal often seen as a precursor to a recession.
Deutsche Bank economists predict a US recession next year. “I think the yield curve is approaching that scenario,” said Tim Wessel, a strategist at the bank.
Oil prices, which fell as fears of a slowdown spread among traders, rose, with West Texas Intermediate crude up nearly 2% to over $104 a barrel.
The euro slipped in early trading and nearly hit one-to-one parity with the US dollar before rising, while Europe’s Stoxx 600 index closed with a 2.5% gain for the week. The pound held most of Thursday’s gains against the dollar, after Boris Johnson announced he would step down as Britain’s prime minister. The FTSE 100 index, the British benchmark, ended the week up slightly.
Asian markets mostly rose, although they fell from their highs on Friday after Shinzo Abe, Japan’s former prime minister, was gunned down at a political rally, shocking the nation. Mr Abe, the longest-serving leader in Japan’s post-war history, later died from his injuries, aged 67.