U.S. stocks fell Friday, a session after all three benchmark indexes finished at records, as some investors locked in recent stock gains following a stellar January jobs report that exceeded economists’ expectations.
Also on investors’ radar were efforts to contain the fast-moving coronavirus, amid a busy week of corporate quarterly reports.
How are the major benchmarks faring?
The Dow Jones Industrial Average fell DJIA, -0.95% 314 points, or 1%, to 29,065, while the S&P 500 index SPX, -0.56% shed 23 points, or 0.7%, to trade at 3,323. The Nasdaq Composite Index COMP, -0.59% retreated 76 points, or 0.8%, to 9,498.
Equity benchmarks are still on pace for sizable weekly gains, with the Dow up 2.9% for the week, the S&P 500 index advancing 3%, and the Nasdaq gaining nearly 4%.
What’s driving the market?
The U.S. economy added 225,000 jobs in January, well above the 165,000 jobs expected by economists polled by MarketWatch, while the unemployment rate ticked up slightly to 3.6% as the share of Americans in the labor force rose by 0.2 percentage point.
Read: How economists are interpreting a January jobs report that shows the U.S. added 225,000 jobs
Stocks were lower, however, after a week of aggressive gains that saw markets erase losses and carve out all-time highs, which were driven by concerns over the outbreak of coronavirus.
“The largest-weighted stocks are not so economically sensitive,” said Diane Jaffee, a portfolio manager at TCW, about the pullback following the jobs report, which included a dip in shares of Apple Inc. AAPL, -1.46%. “While these $1 trillion club companies continue to do well, they’re not really aided or abetted by an economic cycle being positive.”
Average hourly wages rose 0.2% last month, versus expectations of a 0.3% rise. Year-over-year, earnings have gained 3.1%, down from a postrecession peak of 3.4% in February.
“January’s better-than-expected jobs report is well-timed in that it boosts economic confidence just when coronavirus fears had investors questioning the growth outlook,” according to Alec Young, managing director of global markets research at FTSE Russell.
“That said, stocks are overbought after a huge rally, some of which has been predicated on hopes for a June Fed rate cut, which now seems highly unlikely,” he added. “As such, equities may not react positively in the near term despite the strong read on the labor market.”
Meanwhile, China’s National Health Commission on Friday confirmed more than 31,000 cases of the deadly pneumonialike virus in the country, with more than 630 deaths. The disease also continues to spread outside the country.
The People’s Bank of China has injected 1.7 trillion yuan ($243.88 billion) of liquidity into the financial system to stem the impact from the Wuhan virus that has hurt travel and economic output, and the government is considering additional stimulus to stem any downturn, according to the Associated Press.
Analysts estimate that China’s gross domestic product will likely slow to 5%, but most of the effects are likely to dissipate after the first quarter.
“The coronavirus outbreak will be temporary and will not change the long-term improvement of China’s economy,” said Pan Gongsheng, a PBOC vice governor, at a news briefing Friday.
Liz Ann Sonders, chief investment strategist at Charles Schwab, told MarketWatch that this week’s gains have “been more about central bank’s reaction to coronavirus,” then about optimism that it has been sufficiently contained.
“You’ve seen the PBOC and Bank of Japan step up with central bank liquidity, while the market is pricing in a higher chance that the Fed will cut rates too,” she said. If this week’s rally has in fact been driven by reactions to such stimulus, “You can see a stronger-than-expected jobs report as reason to believe the Fed won’t cut rates, putting pressure on the market,” she said.
Meanwhile in the U.S., Federal Reserve Vice Chairman for Supervision Randal Quarles said Thursday he wants to encourage banks to tap the Fed’s discount window to help prevent another repo market freeze.
In other economic data, wholesale inventories in the U.S. fell 0.2% in December, according to the Commerce Department. A report on consumer credit is due at 3 p.m. Eastern Time.
Which stocks are in focus?
- Canada Goose Holdings Inc.’s U.S. listed shares GOOS, -4.32% were down sharply as it said coronavirus has had a “material negative impact.”
- Shares of AbbVie Inc. ABBV, +5.82% rose after the drugmaker beat earnings expectations.
- Vans parent VF Corp. shares VFC, -1.24% traded lower Friday, after the company said it has closed about 60% of its stores in China.
- Fidelity National Financial FNF, -6.71% shares dipped after it announced Friday a deal to buy insurer FGL Holdings FG, +0.21% in a deal valued at $2.7 billion.
- Shares of Credit Suisse CSGN, +0.23% CS, -0.31% fell in the wake of the resignation of CEO Tidjane Thiam.
- EBay Inc. shares EBAY, -5.01% declined after Intercontinental Exchange Inc. ICE, +2.94% said that it was no longer looking to acquire the company.
- Madison Square Garden MSG, -0.71% saw its shares rose after it beat fourth-quarter earnings estimates.
How are other markets trading?
Investors were bidding up government bonds, sending the yield on the 10-year U.S. Treasury note TMUBMUSD10Y, -3.99% lower by about 6.6 basis points to 1.578%. Bond prices move inversely to yields.
Oil prices declined. The price of a barrel of West Texas Intermediate crude for March delivery CLH20, -1.10% fell 64 cents, or 1.3% to $50.31 on the New York Mercantile Exchange. In precious metals, gold for April delivery GCJ20, +0.32% rose $5.80 to $1,575.80 an ounce on Comex, as investors sold stocks and bought bullion and other defensive havens.
The U.S. dollar DXY, +0.18% gained 0.2% relative to a basket of six trading peers.
In Europe, stocks settled lower Friday, with the Stoxx Europe 600 shedding 0.3%, but still up 3.3% for the week, according to Dow Jones Market Data.
In Asia overnight, stocks traded mixed. The China CSI 300 000300, +0.00% was virtually unchanged, while Japan’s Nikkei 225 NIK, -0.19% lost 0.2% and the Hong Kong’s Hang Seng HSI, -0.33% lost 0.3%.
