Stocks Close In The Red Despite Upbeat Jobs Data - U.S. Commentary

(RTTNews) - After moving moderately higher in early trading, stocks showed a notable downturn over the course of the trading day on Friday. The major averages pulled back well off their highs for the session and into negative territory.

While the major averages regained some ground going into the close, they remained stuck in the red. The Dow slid 60.59 points or 0.3 percent to 17,824.29, the Nasdaq fell 20.70 points or 0.4 percent to 4,744.40 and the S&P 500 dipped 7.05 points or 0.3 percent to 2,055.47.

Despite the pullback on the day, the major averages all moved sharply higher for the week. The Dow soared by 3.8 percent, while the S&P 500 jumped by 3 percent and the Nasdaq surged up by 2.4 percent.

The early strength on Wall Street partly reflected a positive reaction to the release of a Labor Department report showing stronger than expected job growth in the month of January.

The report said non-farm payroll employment rose by 257,000 jobs in January compared to economist estimates for an increase about 230,000 jobs.

However, the Labor Department also said the unemployment rate edged up to 5.7 percent in January from a six-year low of 5.6 percent in December. The rate had been expected to remain unchanged.

The unexpected uptick by the unemployment rate reflected a substantial increase by the size of the labor force, which surged up by 1.05 million.

The report offset recent concerns about the economy, but traders seemed reluctant to buy stocks amid speculation the data may lead the Federal Reserve to raise interest rates sooner than previously anticipated.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "In general, while it's important not to over-react to one data point, there are exceptions and this is one of them."

"Employment growth is clearly on fire and its beginning to put upward pressure on wage growth," he added. "The Fed can't wait much longer in that environment, particularly not when interest rates are starting at near-zero."

The subsequent pullback by the markets was partly due to concerns about the situation in Greece following news that Standard & Poor's downgraded its rating on Greek debt to "B-" from "B," with a negative outlook.

S&P said the downgrade reflects its view that liquidity constraints have narrowed the timeframe during which the new Greek government can reach an agreement on a financing program with its creditors.

Analysts noted that S&P was just playing catch up to Moody's, but the news still inspired some profit taking following the recent upward move by stocks.

Sector News

While many of the major sectors ended the day showing only modest moves, substantial weakness was visible among gold stocks. Reflecting the weakness in the sector, the NYSE Arca Gold Bugs Index plummeted by 5.4 percent.

The sell-off by gold stocks came amid a sharp drop by the price of the precious metal, with gold for April delivery plunging $28.10 to $1,234.60 an ounce.

Utilities stocks also came under considerable selling pressure on the day amid concerns about the impact of higher interest rates. The Dow Jones Utilities Average tumbled by 4 percent to its lowest closing level in well over a month.

Commercial real estate, biotechnology, and telecom stocks also moved notably lower, contributing to the pullback by the broader markets.

On the other hand, significant strength remained visible among financial stocks, with the Dow Jones Banks Index and the NYSE Arca Broker/Dealer Index jumping by 1.9 percent and 1.7 percent, respectively.

Housing stocks also managed to hold on to the bulk of their early gains, resulting in a 1.2 percent advanced by the Philadelphia Housing Sector Index.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Friday. Japan's Nikkei 225 Index advanced by 0.8 percent, while Hong Kong's Hang Seng Index fell by 0.4 percent.

Meanwhile, the major European all moved to the downside on the day. While the German DAX Index fell by 0.5 percent, the French CAC 40 Index and the U.K.'s FTSE 100 Index dipped by 0.3 percent and 0.2 percent, respectively.

In the bond market, treasuries saw substantial weakness on the heels of the upbeat jobs data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 12.3 basis points to 1.938 percent.

Looking Ahead

Following the sew of data released over the past week, the economic calendar for next week is relatively light, although traders are likely to keep an eye on reports on retail sales, jobless claims, and import and export prices.

Earnings news is also likely to remain in focus, with Cisco (CSCO), Coca-Cola (KO), Hasbro (HAS), Kellogg (K), MetLife (MET), PepsiCo (PEP), and Tesla Motors (TSLA) among the companies due to report their quarterly results.