Investors pumped the brakes on a rising equities market Feb. 2, as new jobs numbers appeared to bolster the case for rising inflation. The Dow Jones Industrial Average tumbled 2.54% to 25,520.96, the S&P 500 lost 2.12% to 2,762.13 and the Nasdaq Composite Index contracted 1.96% to 7,240.95.
Markets tumbled after the U.S. Labor Department released new data showing nonfarm payroll employment increasing by 200,000 jobs in January, well above Econoday's consensus estimate of 175,000. The unemployment rate remained unchanged at 4.1%.
But it was average hourly earnings for all employees on private nonfarm payrolls that captured the attention of investors. Average hourly earnings for all employees on private nonfarm payrolls increased by 9 cents to $26.74 and by 75 cents over the year, the Labor Department said. The bump in wage growth may give the Federal Reserve a stronger case for a hawkish path to raising interest rates, despite the fact that the Fed kept rates steady at the conclusion of its Federal Open Market Committee meeting in January.
Quincy Krosby, chief market strategist at Prudential Financial, said in an interview that indications of rising inflation, the final puzzle piece for the Fed's dual mandate of full employment and stable prices, are sobering investors to the "overbought" equities market.
"Today, you had the missing ingredient in this recovery: wages moving higher than expectations," Krosby said. "That set the markets off again."
Bond markets revealed a steepening yield curve as the U.S. 10-year Treasury spiked to 2.837%. Krosby said the sudden movement has introduced nervousness but has not yet signaled a flight from equities into safe-harbor assets, which she said is a conversation that usually happens when 10-year yields reach 3.5%.
The largest banks all saw their shares decline in trading. JPMorgan Chase & Co. lost 2.22% to $114.28, Citigroup Inc. declined 2.36% to $77.02, Bank of America Corp. decreased 1.69% to $31.95, and Wells Fargo & Co. fell 2.20% to $64.07.
In notable movers, shares of Houston-based Cadence Bancorp. declined 5.65% to $26.54, a day after its majority owner Cadence Bancorp LLC announced it would be selling 8,050,000 shares of Cadence Bancorp.'s class A common stock. Cadence Bancorp. will receive no proceeds from the sale, and Cadence Bancorp LLC will retain majority voting power.
Shares of Carmel, Ind.-based Merchants Bancorp declined 3.78% to $20.60.
Some banks gained in trading Feb. 2. Moline, Ill.-based QCR Holdings Inc. added 5.21% to $46.45 and San Juan, Puerto Rico-based OFG Bancorp gained 2.20% to $11.60.
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