Stocks slip after huge January jobs number

Stocks fell early Friday as a surprisngly strong monthly jobs report and weaker-than-expected financial performances from some of the country's biggest technology companies.

The S&P 500 was down 45 points, or 1.1%, to 4,135, in early morning trading. The Dow Jones industrials fell 121 points, or 0.4%, to 33,933 and the tech-heavy Nasdaq tumbled 1.8% the morning after three technology bellwethers — Apple, Amazon and Alphabet — posted lackluster quarterly results after Thursday's close.

America's employers added a robust 517,000 jobs in January, a surprisingly strong gain in the face of the Federal Reserve's aggressive drive to slow growth and tame inflation with higher interest rates.

The unemployment rate dipped to 3.4%, a new half-century low.

Layoffs limited to tech industry — for now

Many technology companies have announced major layoffs recently, but the government's weekly unemployment benefits report Thursday hinted early that job cuts are not that widespread. Fewer workers applied for unemployment benefits last week than expected, and the number dropped to its lowest level since April. There are still nearly two available jobs for every unemployed American.

"The robust 517,000 gain in nonfarm payrolls in January means that, despite most leading indicators of recession flashing red, the economy is clearly not as close to recession as we had suspected," Andrew Hunter, senior U.S. economist with Capital Economics, said in a report.

Other analysts see far more trouble on the horizon for 2023.

"Looking ahead, we don't expect a repeat of the January surge in employment in the months immediately ahead," analysts with Oxford Economics said in a research note. Despite the latest job data, they expect job growth to slow in the months ahead as Fed rate hikes slow economic growth.

"We expect outright job losses in the second half of the year and look for the unemployment rate to rise by about 1 [percentage point. This is a fairly modest rise in the unemployment rate compared to prior recessions, but will still take a toll on the economy," the analysts said.

Employment in the information sector, which contains many technology companies, fell by 5,000, equal to its decline in December, according to the latest job numbers. 

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"While the tech sector does play an outsized role in driving productivity and corporate earnings, it remains a fairly small share of total employment," John Leer, chief economist at Morning Consult, said before the job numbers were released. "For all these folks that are being fired, many of them are being re-hired, reabsorbed elsewhere."

Investors' expectations take a turn

Stocks have gained since the year began on hopes that the U.S. Federal Reserve may soon pause interest rate hikes. Such increases help stamp out inflation but also make borrowing costlier for businesses and households, which slow the economy. The new data, however, puts a damper on those hopes.

"This jobs report substantially raises the odds that the Fed will not only raise interest rates again in March, but also in May," Bill Adams, chief economist for Comerica Bank, said in a note. 

"The jobs report should be interpreted in the context of other recent economic data which point a much less robust picture of the economy," he said.

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Tech companies had been riding high Thursday, coattailing off Facebook parent Meta, which rose 23% after reporting late Wednesday that its revenue beat Wall Street's muted expectations and announcing a $40 billion stock buyback.

But after the bell, Apple posted its first quarterly revenue drop in nearly four years, Amazon reported worse-than-expected fourth-quarter profit, and Google parent Alphabet reported a 34% decline in profit. The three companies' shares were down between 2.6% and 3.6% a couple hours before the bell Friday.

The yield on the 10-year Treasury, which helps set rates for mortgages and other important loans, fell to 3.40% from 3.42% late Wednesday. The two-year yield, which moves more on expectations for the Fed, held at 4.10%.

In energy trading, benchmark U.S. crude fell 13 cents to $75.75 a barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the international standard, dropped 21 cents to $81.96 a barrel in London.

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