U.S. Stock Indexes Churn as Investors Gird for Higher Rates

Traders work on the floor of the New York Stock Exchange, Friday. (Reuters/Brendan McDermid)

U.S. stock indexes churned on Friday, with high-dividend stocks falling and tech stocks rising, after a strong jobs report pushed investors to gird for higher interest rates.

Not only was hiring better than expected last month, but so were workers’ wage gains. It’s the latest evidence that the U.S. economy continues to power ahead, and it clears the way for the Federal Reserve to raise short-term interest rates at its meeting later this month and beyond. Treasury yields jumped in response.

KEEPING SCORE: The S&P 500 was up 2 points, or 0.1 percent, at 2,880, as of 11:20 a.m. Eastern time. It climbed back from a loss of as much as 0.5 percent shortly after the start of trading.

The Dow Jones Industrial Average fell 3 points to 25,993, and the Nasdaq rose 30, or 0.4 percent, to 7,952.

RATE WATCH: Employers hired more workers last month than economists had expected, and the unemployment rate remained near an 18-year low. That helped push up the average hourly wage by 2.9 percent from a year earlier, the fastest gain in eight years.

If wage growth keeps accelerating, it could push the Federal Reserve to get more aggressive about raising rates, something it has pledged to do slowly and steadily.

Higher interest rates can hurt stock prices because they make bonds look more attractive. The market went through a similar scenario in February, when that month’s jobs report showed a surprisingly large increase in wages. But investors have been preparing themselves for a total of four rate increases in 2018 following comments from the Fed.

“What everyone’s trying to figure out is at what point do you get the intersection of higher wages pushing into inflation and the Fed starting to get a little more aggressive,” said David Joy, chief market strategist at Ameriprise Financial.

“We’re not there yet, but this takes us one step closer to that, and historically, that’s what brings expansions and bull markets to an end.”

In the meantime, strong jobs data give further credence to the view that the United States remains a bright spot for the global economy, which helps corporate profits and stock prices, Joy said.

YIELDS: The yield on the 10-year Treasury jumped to 2.93 percent from 2.87 percent late Thursday. The two-year yield rose to 2.69 percent from 2.62 percent.

DIVIDENDS DULLED: When bonds are offering higher yields, it can pull buyers away from stocks that pay big dividends. Utility stocks and real-estate investment trusts, which are among the market’s highest dividend payers, had some of the day’s steepest losses.

Utilities in the S&P 500 fell 0.7 percent, and real-estate investment trusts lost 1.1 percent.

TECH RECOVERY: Tech stocks have stumbled this week, a relatively rare occurrence for a group that has led the market for much of the last five years. But technology stocks were again the market’s leaders on Friday, and those in the S&P 500 rose 0.4 percent for one of the biggest gain among the 11 sectors that make up the index.

Broadcom was one of the strongest stocks in the index after reporting stronger-than-expected profit for the latest quarter. The chipmaker’s stock jumped 7.6 percent to $232.48.

MARKETS OVERSEAS: In Asia, Japan’s Nikkei 225 index lost 0.8 percent, and the Kospi in South Korea dropped 0.3 percent. Hong Kong’s Hang Seng index, which has dropped 18 percent since its peak in late January, was virtually unchanged.

In Europe, France’s CAC 40 rose 0.1 percent, and Germany’s DAX slipped 0.1 percent. The FTSE 100 in London fell 0.6 percent.

CURRENCIES: The dollar rose to 111.17 Japanese yen from 110.83 yen late Thursday. The euro fell to $1.1578 from $1.1625, and the British pound rose to $1.2948 from $1.2933.

COMMODITIES: Benchmark U.S. crude fell 45 cents to $67.32 per barrel. Brent crude, the international standard, slipped 33 cents to $76.17.

Gold slipped $1.40 to $1,202.90 per ounce.