U.S. stocks traded mostly lower Friday, despite an upbeat report showing the economy added far more jobs than expected last month. The strengthening job market suggests a late summer or early fall interest rate hike from the Federal Reserve.
Friday’s stock declines were led by the utility and technology sectors.
The Dow Jones Industrial Average (INDEXDJX:.DJI) fell 34.07 points, or 0.19 percent, to 17,872. The Standard & Poor's 500 (INDEXNASDAQ:.IXIC) dipped 1.17 points, or 0.06 percent, to 2,095. But the Nasdaq composite (INDEXSP:.INX) rose 2.13 points, or 0.04 percent, to 5,061.
All three major indexes fell in morning trading even though the U.S. economy added more jobs last month. “When you begin to widen the lens, you still have all the drama with the negotiations in Greece and slowing economic data in China. The good news from today’s report is that it removes some of the doubt over the U.S. recovery following the sharply depressed first quarter of inactivity,” said Eric Wiegand, senior portfolio manager at U.S. Bank Wealth Management.
U.S. employment rose by 280,000 jobs in May, soundly beating forecasts for 225,000 additions, and the unemployment rate rose to 5.5 percent in May from 5.4 percent the prior month, the Labor Department announced Friday.
While the slight rise in unemployment may appear disappointing, the figure is encouraging to economists because more people are coming back into the U.S. labor force, Wiegand said. Last month, 397,000 people entered the labor market.
Hospitality and leisure added 57,000 jobs in May. While those jobs might not be the highest-paying, experts say the figure suggests U.S. retail sales will bounce back. “Those gains do suggest that May's retail sales figures, due out next Thursday, will show consumers finally shaking off their winter blues,” Paul Ashworth, chief U.S. economist at Capital Economics, said in a research note Friday.
The stronger-than-expected report suggests the U.S. economy is regaining momentum after a winter slowdown, which could mean a late summer or early fall interest rate hike from the U.S. Federal Reserve. “If we do see the recovery from the first quarter sustain, and we’re getting evidence of that in today’s jobs numbers, certainly September could be a much more probable time for the Fed to announce raising rates,” Wiegand said.
Ashworth agrees. "At this stage this evident strength in the labor market probably isn't enough to persuade the Fed to hike rates by July, but it leaves a September liftoff looking more likely than ever."
Verizon Communications Inc. (NYSE:VZ) led the Dow lower Friday, losing 1.3 percent to $47.39 in morning trading, a day after shares of the telecommunications company were downgraded by JPMorgan Chase & Co. to Neutral from Overweight. The firm said Verizon’s acquisition of AOL may take a few years to materialize, and maintained its 12-month price target of $55.
Meanwhile, the S&P 500 financial and energy sectors were among the biggest gainers Friday, adding 1 percent and 1.5 percent, respectively. JPMorgan Chase & Co. (NYSE:JPM) was the largest gainer in the Dow, adding nearly 2 percent. The financials likely gained Friday because the sector looks set to benefit from a hike in interest rates this year.
“Financials did decently in 2014, but they have more upside this year, especially if interest rates start to go up, which means more interest money for them -- whether it's mortgages or deposits,” J.J. Feldman, managing director and portfolio manager at Miracle Mile Advisors, told International Business Times earlier this year.
Meanwhile, real estate indexes, such as the Dow Jones U.S. Mortgage REITs Index, traded lower Friday as the sector is more sensitive to a coming rise in interest rates.