Stocks, Bonds Fall on Job Data

A strong employment report sent stock and bond prices tumbling Friday, as traders took the latest jobs numbers as yet another sign that higher interest rates were on the way.

Rising oil prices also roiled the markets as the price of crude reached $40 a barrel for the first time in more than a decade before settling at $39.93 in New York trading.

“This has been a dismal day on Wall Street,” said Hugh Johnson, chief investment officer at First Albany Corp. “We are headed into a very strong economy, with upward pressure on prices. That darkens the outlook for corporate profits.”

Friday’s sell-off was the broadest since 1997, according to Bloomberg News, with declining issues outnumbering those advancing by a 12-1 ratio on the New York Stock Exchange. The Dow Jones industrial average slid 123.92 points, or 1.21%, to 10,117.34.

The broader Standard & Poor’s 500 index dropped 15.29 points, or 1.37%, to 1,098.69. The technology-heavy Nasdaq composite index fell 19.78 points, or 1.02%, to 1,917.96.

Trading was brisk, with about 1.6 billion shares changing hands on the NYSE.

The hardest-hit industries were those most sensitive to interest rates, such as financial services companies, home builders and automakers.

The Bloomberg index of major U.S. home builders was down 5.06% for the day, with 17 of the 18 stocks in the index falling and one unchanged.

Major lenders felt the pain, with Countrywide Credit Industries down $3.17 to $56.30. Freddie Mac fell $1.42 to $56.95, and Fannie Mae slid $1.02 to $67.86.

General Motors sank $1.67 to $44.60, and Ford was off 49 cents to $14.40.

Interest rate worries hit the bond market equally hard, causing the yield on the benchmark 10-year bond to jump to 4.77% from 4.60% Thursday. Bond prices and yields move in opposite directions.

“The bond market reacted violently, but it was justified given the jobs report,” said Bob Gahagan, director of taxable bond investments at American Century Investments. “What the April data suggest was the March gain was not an outlier. The job market has really turned around.”

The Labor Department reported that the U.S. economy generated 288,000 new jobs in April, trumping expectations and coming on the heels of a huge jobs surge in March -- initially tallied at 308,000 and revised upward to 337,000.

Hourly wages rose 2.2% in the last year, another indication of a growing and vibrant labor market, Gahagan said.

Though more jobs and higher wages are good news on many levels, the trend also points to greater consumer spending -- which means more inflation, which means higher interest rates. Those higher rates can, in turn, put a damper on both corporate spending and profits. Higher rates are also bad news for anyone holding a long-term bond. That’s because when rates rise, the value of existing bonds falls.

Market professionals had expected the Federal Reserve to hold fast on interest rates until August, but many now think the Fed might start raising rates at its June 30 meeting.

Even so, some pros said Friday’s sell-off was an overreaction.

“The market seemed to be ignoring the fact that we are now in a pretty verifiable economic recovery,” said Jay Wong, senior vice president at money manager Payden & Rygel. “Instead, they choose to focus on higher interest rates’ being a damper on economic growth.”

Added Gahagan: “The fact of the matter is, a good jobs report means the economy is doing better, which means more people will be employed, which means that people can buy goods and companies can do better.”

Market Roundup, C4