by Investing.com Staff, Investing.com
U.S. stocks fell sharply on Friday after stronger than expected data from the monthly jobs report heightened concerns that the Federal Reserve could raise interest rates by June.
The Dow Jones Industrial Average fell 278.94 or 1.54% to 17,856.78, marking its biggest daily decline since Jan. 5 when it declined by more than 330 points.
All 10 sectors on the S&P 500 Composite Index ended lower on the day, as the S&P 500 lost 29.78 to close at 2,071.26.
The NASDAQ Composite index, meanwhile, posted a weekly loss for the first time in five weeks, as it dropped 1.11% or 55.44 to 4,927.37. Earlier in the week, the NASDAQ cleared the 5,000 level for the first time since 2000.
Apple Inc. (NASDAQ:AAPL) rose 0.15% or 0.19 to 126.60 after it was announced that the tech giant will replace AT&T Inc. (NYSE:T) on the Dow at the close of trading on Mar. 18. Stocks in Apple moved slightly up ahead of Monday’s expected announcement, launching the new iWatch. AT&T Inc. dropped 1.53% or 0.52 to 33.48 on Friday.
The top performer on the Dow Jones Industrial Average on Friday was EI du Pont de Nemours and Company (NYSE:DD), which lost 0.18 points or 0.23% to close at 78.14. The worst performer was Johnson & Johnson (NYSE:JNJ), which dropped 2.35% or 2.41 to 100.11.
On the NASDAQ Composite index, the top performer was eBay Inc (NASDAQ:EBAY), which gained 1.34% or 0.79 to 59.87. The Northern California-based e-commerce company is expected to spin-off PayPal at some point in 2015. The worst performer, meanwhile, was Vodafone Group PLC (NASDAQ:VOD), which fell 4.07% or 1.40 to 32.97.
Beset by significant losses in the Utilities, Health Care and Consumer Staples sectors, the S&P 500 dropped by 1.42% on the day. Dividend paying utilities have been one of the top beneficiaries of a low-rate environment, since the Fed lowered interest rates below 1% in December, 2008. On Friday, however, the sector fell by 3.41% as the Wisconsin Energy Corporation (NYSE:WEC) and Southwestern Energy Company (NYSE:SWN) were among the worst performers of the day. The SPDR Select Sector – Utilities (NYSE:XLU) exchange traded fund, also dropped 3% or 1.34 to 43.39.
Despite posting minor losses, the Financial sector still finished Friday as the top performer on the S&P500. The Charles Schwab Corporation (NYSE:SCHW), E-TRADE Financial Corporation (NASDAQ:ETFC) and TD Ameritrade Holding Corporation (NYSE:AMTD) all closed the day up higher, after receiving a price target hike fromDeutsche Bank AG (XETRA:DBKGn) NA O.N. (NYSE:DB). E-TRADE was the top performer on the S&P 500, gaining 3.26% or 0.88 to 27.85.
The worst performer on the S&P 500 Newmont Mining Corporation (NYSE:NEM), which dropped 7.91% or 2.00 to 24.37. The mining sector posted the biggest decline in the U.S. jobs report, losing 9,600 jobs last month.
The euro fell to an 11-year low against the U.S. Dollar for the third consecutive day, as currency traders weighed the divergence that may ensue from the start of a monetary easing program in Europe with a potential interest rate hike in the United States.
EUR/USD closed at 1.0841 at the end of U.S. trading, down 0.0186 or 1.69%. The pair reached a daily-high at 1.0979 early in U.S. morning trading, before dropping 0.01% upon the release of a stronger than expected U.S. jobs report. In 2015, the euro has fallen more than 10% against the U.S. dollar.
On Friday, the euro slipped below 1.09 against the dollar for the first time since 2003. The currency’s plunge continues, as the European Central Bank is set to begin its€60 billion a month quantitative easing program on Monday. ECB president Mario Draghi announced on Thursday that the bond buying program will last until September, 2016 or beyond if the central bank does not approach its target inflation rate of 2%.
Bond buying programs, such as quantitative easing, are pursued by policymakers as a way of stimulating the economy by driving up the market price of bonds. When bond prices increase, yields decrease lowering the rates for mortgages and other loans.
One far-reaching implication of printing vast quantities of a currency is that it drives down its value against other currencies on the foreign exchange market. The euro also fell more than 1% against the Yen and 0.85% against the Australian dollar on Friday.
More tellingly, the spread between 10-year U.S. Treasury notes (2.25%) and 10-year German bunds (0.39%) reached its widest margin in 25 years. Since late-January, the yield on 10-year U.S. treasuries are up more than 35%. The lower yield in German bonds, meanwhile, sent Spanish, Italian and Portuguese bonds spiraling to record lows.
The dollar soared against the euro on Friday following the release of positive U.S. employment data. The U.S. added 295,000 jobs in February, according to the U.S. Bureau of Labor Statistics, more than 55,000 above forecasts for the month and January’s figure of 239,000. Employment growth, meanwhile, has averaged 288,000 over the last three months, as the current unemployment rate fell from 5.7 to 5.5%.
Data concerning wage growth was less promising, as weekly hourly wages inched up three cents from January and 2% from this point last year. The Federal Open Market Committee could provide further details on the timetable for raising interest rates at its next meeting on Mar. 17-18.
Speculators turned bearish on the S&P 500 and less bullish on gold and silver. On the Forex front bearishness increased for British pound, Canadian dollar and the yen this week.
Gold suffered its biggest loss in the calendar year on Friday after better than expected data from the monthly U.S. jobs report and a stronger dollar deepened concerns that the Federal Reserve could raise interest rates by June.
On the Comex division of the New York Mercantile Exchange, gold future prices for April delivery fell $32.40 or 2.71% to $1,163.80 a troy ounce in U.S. afternoon trading. It marked the steepest decline in gold future prices since December, 2013.
Previously, the biggest drop of the year came on Jan. 29 when gold futures plunged $31.30 to close at $1,255.90.
The decline on Friday erased all of the gains in gold futures for 2015, as it closed on the final day of trading last year at $1,184 an ounce.
Coincidentally, investors unloaded the precious metal in late-January after the Fed released a statement that the economy had been expanding at a solid pace and that it would remain patient in deciding when to increase its benchmark rate. Prices for gold futures had fluctuated between $1,194.60 and $1,223 since Federal Reserve Chair Janet Yellen’s dovish testimony before Congress on Feb. 24.
At Yellen’s semi-annual Humphrey-Hawkins testimony on Capitol Hill, she indicated that the Fed could consider an interest rate hike on a “meeting by meeting” basis if economic conditions improved and inflation moved toward its target rate of 2%. The Fed could alter its monetary policy stance when the Federal Open Market Committee meets next on Mar. 17-18.
Higher interest rates are a troubling sign for gold, which struggles to compete with yield-bearing investment strategies when the Federal Reserve tightens monetary policy. The yield on 10-year U.S. treasuries increased 6.91% or 0.146 to 2.256 on Friday. For the year, the treasury notes are up nearly 15%.
The U.S. added 295,000 jobs in February, according to the U.S. Bureau of Labor Statistics, more than 55,000 above forecasts for the month and January’s figure of 239,000. Employment growth, meanwhile, has averaged 288,000 over the last three months, as the current unemployment rate fell from 5.7 to 5.5%.
Data concerning wage growth was less promising, as weekly hourly wages inched up three cents from January and 2% from this point last year. The Fed would like to see improved figures in terms of wage growth if it decides to raise interest rates, Yellen added at last month’s testimony.
The jobs report pushed the U.S. dollar broadly forward against a basket of currencies, as the U.S. Dollar Index soared 1.36% or 1.31 to 97.71.The euro also reached an 11-year low against the dollar for the third consecutive day, dropping 1.62% or 0.178 to 1.0850. The euro is down more than 10% against the U.S. dollar this year.
A strengthening dollar affects dollar-denominated commodities like gold by making it more expensive for holders of other currencies to purchase the metal.
The decline, however, paled in comparison from the sell off on April 15, 2013 when gold lost $140.30 or 9.3% to close at $1,361.10.
Silver futures, meanwhile, for May delivery also fell 0.35 or 2.17% to trade at 15.81 a troy ounce.
Copper delivery for May decreased 0.044 or 1.65% to $2.609 a pound.
Crude oil futures were higher on Friday, amid fresh concerns over supply disruptions in Libya and Iraq, while markets eyed an upcoming report on U.S. employment.
On the New York Mercantile Exchange, U.S. crude oil for delivery in April traded $0.20 or 0.38% higher to $50.96 a barrel during European early afternoon trade.
Prices plunged $0.77 or 1.49% on Thursday to settle at $50.76.
Futures were likely to find support at $49.60, the low from March 4 and resistance at $52.49, the high from February 20.
Crude prices strengthened as fighting escalated in northeast Iraq where Islamic State militants have set fire to oilfields, while in Libya, worsening security conditions have led to the closure of 11 oilfields.
The commodity had lost ground on Thursday on the back of a stronger dollar after European Central Bank President Mario Draghi confirmed that the ECB will begin purchasing euro zone government bonds on March 9 under its new quantitative easing program.
The combined monthly asset purchases will amount to €60 billion per month and is expected to run until September 2016, or until the ECB sees that inflation is on a “sustained path” to its target of close to, but below, 2% in the medium term.
Dollar-denominated oil futures contracts tend to fall when the dollar rises, as this makes oil more expensive for buyers in other currencies.
Traders now awaited the release of the latest U.S. nonfarm payrolls report later Friday, for further indications on the strength of the recovery in the labor market.
Elsewhere, on the ICE Futures Exchange in London, Brent oil for April delivery jumped $0.66, or 1.08%, to hit $61.14 a barrel, with the spread between the Brent and the WTI crude contracts stranding at $10.18.
Natural gas futures trimmed gains on Thursday, despite data showing that U.S. natural gas supplies fell more than expected last week.
On the New York Mercantile Exchange, natural gas for delivery in April edged up 1.5 cents, or 0.52%, to trade at $2.784 per million British thermal units during U.S. morning hours. Prices were at around $2.812 prior to the release of the supply data.
Futures were likely to find support at $2.641 per million British thermal units, the low from March 3, and resistance at $2.888, the high from February 26.
The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. in the week ended February 27 fell by 228 billion cubic feet, compared to expectations for a decline of 222 billion.
The five-year average change for the week is a decline of 115 billion cubic feet, while supplies fell by 189 billion the same time last year.
Total U.S. natural gas storage stood at 1.710 trillion cubic feet. Stocks were 492 billion cubic feet higher than last year at this time and 143 billion cubic feet below the five-year average of 1.853 trillion cubic feet for this time of year.
A day earlier, natural gas for delivery in April rallied 5.7 cents, or 2.1%, to settle at $2.769, as a blast of frigid winter weather was expected to boost near-term fuel demand.
According to weather forecasting models, the Eastern half of the U.S. was expected to see heavy snow and freezing temperatures through March 7, in what was expected to be the last major system of the winter.
Bullish speculators are betting that colder weather will increase demand for the heating fuel. Approximately 49% of U.S. households use natural gas for heating, according to the Energy Department.
The heating season from November through March is the peak demand period for U.S. gas consumption.