NEW YORK (AP) — Stocks were lower in late-morning trading Friday following a surprisingly strong October jobs report that sets the stage for an interest rate hike next month.
Bank stocks rose, helped by the possibility of higher interest rates, while dividend-paying stocks like utilities sank. Bond yields rose sharply as bond investors reacted the jobs number as well.
KEEPING SCORE: The Dow Jones industrial average lost 37 points, or 0.2 percent, to 17,827 as of 11:15 p.m. Eastern. The Standard & Poor’s 500 index lost nine points, or 0.4 percent, to 2,090 and the Nasdaq composite rose three points, or 0.1 percent, to 5,130.
JOBS JOBS JOBS: The strong October jobs report makes the possibility of an interest rate hike by the Fed next month much more likely now, which would mean an end to the nearly seven years of near-zero interest rates that investors have enjoyed. U.S. employers added 271,000 jobs, and the unemployment rate dipped to a fresh seven-year low of 5 percent from 5.1 percent. The burst of hiring, the most in 10 months, filled jobs across a range of industries.
There was a lot riding on the October jobs report for investors. Fed policymakers have made it clear that they want to raise interest rates sooner rather than later, and are just waiting for the data to show enough robust growth to step in.
“Solid employment figures such as these may finally be the sign of labor market durability Yellen was looking for that switches a December rate hike from a possibility to a reality,” said Doug Cote, chief market strategist at Voya Investment Management.
Fed fund futures, which are securities that bet on which way the Fed will move interest rates, now show roughly a 74 percent chance of the central bank raising rates in December, up from 60 percent on Wednesday and up from well below 50 percent as recently as late summer.
GAINERS AND LOSERS: The possibility of higher interest rates changes the dynamics for investors in several ways. Dividend-paying stocks, which are typically bought for their income when interest rates and bond yields are low, dropped sharply on Friday. The Dow Jones utility index, a basket of 15 utility stocks dropped nearly 5 percent.
In contrast, bank stocks rose sharply as higher interest rates mean banks can charge more for lending. JPMorgan Chase rose $1.96, or 3 percent, to $68.42, Bank of America rose 63 cents, or 3.6 percent, to $17.94 and Morgan Stanley rose $1.43, or 4.2 percent, $35.31.
BONDS SELL OFF: The fixed income market saw major declines. Bonds become less attractive in a rising interest rate environment because investors would be buying an interest rate that could be lower than the ones available in the months to come.
The benchmark U.S. 10-year Treasury note jumped to a yield of 2.32 percent, up from 2.23 percent on Thursday, a major move for that normally-staid investment. Bonds with shorter durations saw even more distorted moves. The two-year Treasury jumped from a yield of 0.82 percent to as high as 0.92 percent after the jobs numbers were released.
ENERGY: In energy markets, U.S. crude oil fell 42 cents to $44.77 a barrel in electronic trading in New York. Brent crude, which is a benchmark for international oils, rose 8 cents to $48.06 a barrel in London.
PIPE LEAK: TransCanada fell $1.77, or 5 percent, to $32.62 after The Associated Press and other news outlets reported that the White House, after years of scrutiny, planned to reject the company’s proposed 1,200-mile Keystone XL oil pipeline.
CURRENCIES: The U.S. dollar advanced against other major currencies following the jobs numbers. The euro fell against the dollar to $1.0745 and the dollar rose against the Japanese yen to $122.77.
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