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Stocks edge higher, Treasury yields soar after jobs data

NEW YORK (AP) – Stocks notched modest gains and Treasury yields soared on Friday on Wall Street after a healthy report on the United States (US) job market strengthened expectations for coming interest rate hikes.

The S&P 500 rose 0.3 per cent after bouncing between small gains and losses. The benchmark index eked out a slight gain for the week, it’s third straight amid lingering concerns about high inflation, higher interest rates from the Federal Reserve and the economic effects of the war in Ukraine.

The Dow Jones Industrial Average rose 0.4 per cent and the Nasdaq composite rose 0.3 per cent. Small company stocks outgained the broader market, driving the Russell 2000 one per cent higher.

The sharpest action was again in the bond market, where the yield on the two-year Treasury approached its highest level in more than three years.

Yields jumped after a US government report showed employers added 431,000 jobs last month.

The New York Stock Exchange operates during normal business hours in the Financial District in the Manhattan borough of New York. PHOTO: AP

That was slightly below economists’ expectations for 477,500, but the report also revised earlier months’ data to reflect more strength. It showed raises for workers accelerated last month but at a slower pace than overall inflation, while the unemployment rate improved to 3.6 per cent from 3.7 per cent.

“This was a solid report,” said senior investment strategist at Allspring Global Investments Brian Jacobsen.

“You can see the worries about COVID fading. Fewer people are working remotely. Fewer people are saying they can’t work due to the pandemic.”

A separate report showed that US manufacturing is continuing to grow, though at a slower rate than in February.

A strong jobs market and economy give the Federal Reserve more leeway to raise interest rates sharply to beat down the high inflation that’s sweeping the country.

The Fed has already raised its key overnight rate once, the first such increase since 2018. Following Friday’s jobs report, traders increased bets that the Fed will raise rates at its next meeting by double the usual amount.

Such expectations drive shorter-term Treasury yields in particular, and the two-year yield leaped to 2.45 per cent from 2.28 per cent late Thursday.

The two-year yield again rose above the 10-year yield, which was also climbing, but not as quickly. The 10-year yield rose to 2.38 per cent from 2.33 per cent. On Tuesday, the two-year yield briefly topped the 10-year yield for the first time since 2019, a potentially ominous sign.

Such a flip of the usual relationship between two- and 10-year yields has preceded many recessions in the past, though it hasn’t been a perfect predictor. Some market watchers caution the signal may be less accurate this time, because of distortions in yields caused by extraordinary measures by the Federal Reserve and other central banks to keep interest rates low.

Shares in more than 65 per cent of the companies in the benchmark S&P 500 rose, with healthcare and communications stocks making up a big share of the gains. A slide in industrial, technology and financial stocks kept the index’s gains in check.