Stocks fell on Friday, after a wild week that saw the market rally and then collapse in rapid succession, as investors considered the implications of the latest update on the U.S. job market.
After dropping close to 2 percent in early trading, the S&P 500 regained some ground and was down about half a percent. The index had dropped 3.6 percent on Thursday after rallying 3 percent on Wednesday, and is now flirting with its fifth consecutive weekly decline.
Wall Street’s concern this year has been how quickly the Federal Reserve will withdraw its support for the economy, by raising interest rates and shrinking its holdings of bonds. The moves make risky investments less appealing, ending years of low interest rates and policies meant to keep cash flowing through the financial system, both of which had helped fuel a massive rally in stocks.
On Friday, the Labor Department reported that employers added 428,000 jobs in April, while average hourly earnings rose 5.5 percent from a year ago. While the report showed hiring remains resilient, economists have said that the strong job market and wage acceleration are incentives for the central bank to lift interest rates more aggressively.
A particular concern is that climbing wages could fuel inflation, as companies pass on the higher employment costs to customers. That could, in turn, prompt workers to demand even higher wages, triggering an upward spiral. The data released Friday also showed that the labor force shrank unexpectedly in April, a phenomena that could add to the tightness of the job market if it continued.
The Fed on Wednesday raised interest rates half a percentage point, the biggest increase since 2000. Speaking at a news conference that day, Jerome H. Powell, the Fed chair, said the record number of job openings relative to the number of unemployed workers was a reason policymakers had become more aggressive in recent months.
“You can see that the labor market is out of balance; you can see that there is a labor shortage,” Mr. Powell said. In April, he had described the labor market as “unsustainably hot.”
The report bolstered expectations that the Fed needs to stay on the path of raising interest rates fast, said John Canavan, a lead analyst at Oxford Economics. But trading on Friday was volatile, with stocks even climbing into positive territory briefly as investors grappled with the outlook for the Fed.
“There was early pressure on the market this morning after payrolls grew more strongly than expected, which will keep the Fed on pace for 50 basis point rate hikes over at least the next two meetings,” he said. “The employment report did nothing to change expectations about the Fed from where they were prior to the release.”
In the bond market, the yield on 10-year Treasury notes, a proxy for investor expectations about interest rates, rose to 3.07 percent, off its highest levels of the day.
As they’ve done all year, technology stocks fared worse than the broader market on Friday. The Nasdaq composite dropped 0.7 percent, and is now down nearly 22 percent for the year to date — a far steeper drop than the S&P 500’s nearly 14 percent decline in that period.
Big tech companies reported mixed results for the start of the year in April, and are quickly losing their appeal among investors after two years of blockbuster performance. The retreat this year has come after the Nasdaq rose 81 percent by the end of 2021 from the end of 2018.
“When you look at big tech, they were priced under the expectation that business would be perfect forever. This quarter is questioning that,” said David Bahnsen, the chief investment officer for the Bahnsen Group, a wealth management firm. “You have both valuation coming down and questions about the seeming perfection of their businesses.