Market Snapshot: Dow slips in mixed U.S. stock trading after weak jobs data, casting doubt on timing of Fed taper

For the week, the Dow is heading for a 0.1% loss, while the S&P 500 is on track to gain 0.7% and the Nasdaq was trading toward a weekly advance of 1.6%, according to FactSet data, at last check.

What’s driving markets?

Job creation in August weakened significantly and the mood on Wall Street darkened a little for stock-market bulls on Friday.

Data from the Labor Department showed that the U.S. economy added 235,000 jobs in August, far fewer than forecast for an increase of 720,000, but the unemployment rate dropped to 5.2% from 5.4% and touched a new pandemic low. 

“We’re going to be whipsawed by COVID,” said Luke Tilley, Wilmington Trust’s chief economist, in a phone interview Friday. “There are likely some investors who are a little bit unnerved by the weakness and downside miss in the jobs report.”

The “staggering” rise in COVID cases in the U.S. is “hitting the most vulnerable sectors,” including leisure, hospitality and retail, as the delta variant of the coronavirus spreads, said Tilley. But Friday’s employment report also “confirms for us that job growth is continuing in the sectors that are not as exposed to the virus.”

Despite the weaker-than-expected headline figures, the data for the two previous months were raised from initial readings. June job gains were lifted to 962,000 from 938,000 and July job gains were raised to 1.05 million from 943,000.

On top of that wages grew for the month. Average hourly earnings, month-over-month, rose 0.6% versus 0.3% expected and 0.4% in July. On a year-over-year basis, wages rose 4.3%, compared with 3.9% expected and 4.0% last month.

“Friday’s jobs report showed a significant slowing in hiring, but a surge in wage growth, which is a worrisome combination for the economy,” wrote Jay Pestrichelli, CEO of ZEGA Financial, a West Palm Beach, Fla., investment firm managing $600 million. “Slow economic growth and rising inflation is the worst case scenario for the economy,” he wrote in emailed remarks.

Read: Investors may be missing increased stagflation risks in ‘worsening Covid situation,’ BofA warns

While Tilley anticipates that third-quarter economic growth will be slower than expected as COVID weighs on employment growth and consumer spending, he believes the economic recovery will remain “sturdy” and inflation will decelerate. “We hold overweight to equities and underweight to fixed income,” said Tilley, who is a member of Wilmington’s investment committee.

Meanwhile, the jobs report may raise questions about whether the Federal Reserve could delay its long-anticipated plan to start dialing back asset purchases and other policies that have been viewed as accommodative.

Fed Chairman Jerome Powell has signaled that the central bank would use employment as a key indicator while it considers the end of its pandemic-era measures to add liquidity to markets.

“After having indicated a taper was likely in the next few months, August payrolls perhaps throws that into disarray,” wrote Principal Global Investors’ chief strategist Seema Shah, in emailed comments. “Of course, inflation has been running at multi-decade highs, and has clearly met the ‘substantial further progress’ test—yet that doesn’t appear to have made sufficient an impression on the Fed.”

President Joe Biden in a news conference Friday on the jobs report blamed the lower-than-expected headline number on the coronavirus delta variant but said the pace of job creation still represents growth.

“Some wanted to see a larger number today, and so did I,” Biden said. “But what we’ve seen is continued growth month after month. We’ve added jobs in every single one of my first seven jobs report,” the president said. “This is the kind of growth that makes our economy stronger. Consistent progress, not boom or bust.”

Wednesday’s private-sector ADP jobs report also fell far short of expectations. “With their conviction that inflation will ultimately prove transitory, the Fed is currently much more focused on the employment recovery, implying that today’s very weak number will likely sway the Fed to a November taper, if not later,” Shah wrote.

In other data, a reading of activity in the services sector from the Institute for Supply Management, the ISM services survey, fell to 61.7 in August from a record 64.1. “The services sector is still holding on,” said Tilley. “It’s still in strong growth territory.”

Elsewhere, Japanese stocks far outperformed their Asian peers after Prime Minister Yoshihide Suga, whose government has come under fire for its handling of the pandemic, said he would resign ahead of national elections this year. 

Russ Mould, an analyst at broker AJ Bell, said that the other big story in markets has been the Nikkei’s 2% surge, suggesting “investors are optimistic that the country will find a stronger leader.” Japan Nikkei 225
NIK,
+2.05%
closed up 2.1% on Friday and produced a 5.4% weekly advance, marking the strongest weekly gain since the period ended Nov. 6, 2020, FactSet data show.

Meanwhile, Chinese stocks felt a pinch after weak economic data from the August services purchasing managers index (PMI), which came in at 46.7, below the 52.0 expected and a decline from 54.9 in July. 

Back in the U.S., the market’s direction will be tied to the delta variant, which is a “speed bump” in the economic recovery, said Tavis McCourt, an institutional equity strategist at Raymond James Financial, in a phone interview Friday. With trading volume set to pick up after Labor Day, McCourt said “investors will look through any near-term weakness as long as the delta-infection curve is heading down.”

Read: Unvaccinated Americans shouldn’t travel on Labor Day weekend, says CDC director

Which companies are in focus

• Shares of Uber Technologies Inc. UBER were down 2.4% as the ride-sharing company was set to benefit from a potential investment in China-based rival Didi Global Inc. DIDI by China’s government, according to Gordon Haskett analyst Robert Mollins. Shares of Didi were up 2.3%.

• Kraft Heinz Co. KHC disclosed Friday that it will pay a $62 million civil penalty to settle an investigation by the Securities and Exchange Commission into accounting policies, procedures and internal controls. Its stock was off 0.4%.

• Shares of Apple Inc. AAPL rose 0.4%, after Wedbush’s longtime bullish analyst Dan Ives said underlying demand for iPhones continues to look strong ahead of the launch of the newest version.

How are other assets faring?

• The 10-year Treasury note yield
  TMUBMUSD10Y,
  1.326%
  was trading at 1.322%, up about 3 basis points on Friday afternoon. Bond yields and prices move in opposite directions.

• The ICE U.S. Dollar Index
  DXY,
  -0.16%
  was down 0.2% and heading for a weekly decline of about 0.7%.

• In Asia, the Shanghai Composite
  SHCOMP,
  -0.43%
  slipped 0.3% but was up 1.7% for the week, and the Hong Kong Hang Seng Index
  HSI,
  -0.72%
  dropped 0.7% but climbed 1.9% on the week.

• In Europe, London’s FTSE 100
  UKX,
  -0.36%
  ended Friday down 0.4% as the pan-European Stoxx 600
  SXXP,
  -0.56%
  closed 0.6% lower, pushing the index into the red with a weekly decline of 0.1%; Paris’ CAC 40
  PX1,
  -1.08%
  fell 1.1% on the session but logged a weekly advance of 0.1%, and Frankfurt’s DAX
  DAX,
  -0.37%
  closed off 0.4% and fell 0.5% for the week.

• Oil prices ended lower Friday, with West Texas Intermediate crude for October delivery
  CLV21,
  -1.01%
  falling 1% to settle at $69.29 a barrel. Gold futures
  GCZ21,
  +1.12%
  rose 1.2% to $1,833.70 an ounce, settling at the highest level since mid-June.

—Jack Denton contributed to this article