U.S. stocks tumbled and bonds sold off after strong jobs data increased the likelihood that inflation would return and investors contemplated a scenario where more rate hikes from the Federal Reserve would put a crimp in an equities bull market.
The S&P 500 Index closed down 2.12% to 2,762.13 on Feb. 2, with the index down the most in a week since 2016. The benchmark 10-year Treasury rose almost five basis points to 2.841%. Bond yields rise as prices fall.
The dollar continued to rally, on a stronger-than-expected employment report of 200,000 jobs added in January. The euro was down 0.36% to 1.2462.
In addition to jobs, wage increases caught the attention of market participants trying to gauge how soon — and how many times — the Fed is likely to raise rates this year.
"The U.S. labor market has now generated payroll increases for a record 88 consecutive months, and average hourly earnings rose at the fastest annual rate since April 2009," said Ward McCarthy, chief financial economist at Jefferies, in a research note.
The diffusion index, which measures the breadth of job growth, "indicates that 63% of industries added jobs in January, compared to 52% a year ago," Wells Fargo Chief Economist John Silvia wrote in a research note. He projected that growth would be in the 2.5% to 3% range in the first half of this year.
Silvia also said markets could expect a rate hike in March, with another likely in the second quarter of 2018, though Beth Ann Bovino, S&P Global Ratings chief economist, wrote in a note that wage pressure and economic growth increased the chance of four rate hikes this year.
Though there was some good news from earnings reports after market close Feb. 1 — Amazon.com Inc. posted $1 billion in quarterly earnings — there were also disappointments from leading technology companies. After Apple Inc. said iPhone sales did not do as well as expected, its stock closed down 4.34%. Google parent Alphabet Inc. reported disappointing earnings and its stock closed down 4.78%.
The DAX earlier led European markets lower, with the German benchmark index closing down 1.68%, following a third consecutive annual net loss posted by Deutsche Bank AG.
The FTSE 100 saw its worst week since November 2016 after slipping 0.63%. Europe's Stoxx 600 fell 1.38%.
