U.S. stocks closed mixed after stumbling between small gains and losses Friday as stronger-than-expected jobs data had investors recalibrate expectations around when the Federal Reserve will pause its rate-hiking campaign.
The Labor Department's monthly jobs report for November showed payrolls grew by 263,000, higher than estimated, while unemployment held at 3.7%. Bloomberg expected a print of 200,000 for the month.
The S&P 500 (^GSPC) slipped 0.1%, while the Dow Jones Industrial Average (^DJI) was up by that margin. The technology-heavy Nasdaq Composite (^IXIC) fell 0.2%. All three major sessions were off session lows of more than 1% immediately following the release.
"Another strong jobs report and high wage growth confirms that the Fed’s job isn’t complete yet," Lazard Asset Management Head of U.S. Equity Ron Temple said in a note. "Investors need to reassess their optimism regarding the end of policy tightening – both the level of terminal rates, and how long the Fed keeps rates there."
In commodities markets, the European Union green-lighted a $60 price cap on Russian oil, curbing an uptrend in prices. West Texas Intermediate Futures (WTI) closed lower at around $80 per barrel but were up 5% for the week.
Friday’s moves come after a mostly upbeat week for equity markets, with sentiment lifted by Federal Reserve Chair Jerome Powell’s indication of a moderation in the pace of interest rate increases, and China relaxing some COVID lockdowns following unrest over restrictive virus controls.
But the jobs report appeared to throw a wrench in the market's plans for weekly gains and a so-called Santa Claus Rally, as stocks have tended to jump leading into the holidays. The higher-than-expected jobs numbers, as well as continued strong wage growth, provided further signals that the Fed would continue its campaign to raise interest rates even as it slows down the pace.
For the month, stocks had a lackluster start, with a mixed close across the major averages on Thursday, the first day of December. However, according to Carson Group's Ryan Detrick, no month is more likely to see the S&P 500 end with a gain than December: The benchmark index has been up for the month 75% of the time since 1950.
Treasury Secretary Janet Yellen at a conference earlier this week in New York said the jobs report is the most important data point – in addition to inflation data – that policymakers watch in determining monetary decisions as they take action to restore price stability.
“The US labor market is starting to show tentative signs of softening, but only at the margins,” DataTrek’s Nicholas Colas said in an emailed newsletter Friday, calling the jobs report an "important data point" to watch.
Central bankers have been working to tamp down labor market tightness, driven by excessive job openings, that has placed upward pressure on wages and contributed to soaring prices. But many are worried that the labor market momentum that has encouraged officials to press on with aggressive rate hikes will cause them to overshoot and tip the U.S. economy into a recession.
In its economic outlook for 2023 earlier this year, Bank of America's Michael Gapen warned that labor market momentum could see the federal funds rate go as high as 6%, even as the bank's forecast calls for a terminal rate of 5.00-5.25% by May.
While jobs numbers have so far reflected resilience in the U.S. employment picture, economists expect job growth to trend downward as lagging the impact of higher interest rates catches up. BofA expects the unemployment rate to hit 5.5% in 2023, while Morgan Stanley expects 4.3% and Goldman Sachs forecasts a rise of half a percentage point to 4.2%.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc