Stocks Shudder After a Surprisingly Strong Jobs Report

Stock trading was turbulent on Friday after U.S. employment data for November showed more jobs were added than economists expected, causing markets to fall quickly before recovering some losses as investors grappled with what the report might mean for the economy.

The S&P 500 index fell about 0.6 percent by early afternoon, after recouping losses of more than 1 percent early in the day. The jobs report is critical to Wall Street’s outlook on the economy, particularly its understanding of how far the Federal Reserve has left to go in its campaign of interest rate increases as it looks to bring down inflation. Rising interest rates are a problem for stock investors, because they can dampen spending, economic growth and corporate profits.

While some data, like October’s Consumer Price Index report, have suggested the Fed has made progress in taming inflation, the labor market remains robust.

The S&P 500 has been climbing steadily in recent weeks, recovering from a staggering loss earlier this year, as investors expect a slowdown by the Fed. The benchmark index gained more than 5 percent in November and about 8 percent in October, the first back-to-back monthly gains since mid-2021 and one of the strongest on record according to analysts at Bank of America.

Friday’s report, which also showed that wages rose more than economists expect, prompted a pullback because it suggests the Fed will have to keep interest rates high for longer, said Rick Pitcairn, the chief investment officer of Pitcairn, an investment manager. “The Fed’s going to have to keep its foot on the brake of the economy for longer, which is bad for risk markets.”

Government bond yields, which have fallen in recent weeks, jumped after Friday’s report. The yield on the U.S. two-year Treasury note, which is tied to expectations around the Fed’s interest rate movements, now stands at around 4.3 percent and the yield on the 10-year note rose to 3.5 percent.

Employers added 263,000 jobs in November compared with economists’ expectations for 200,000 new jobs. Friday’s report showed wages in service industries rose by 5.3 percent on an annual basis in November, compared with the 2.5 percent pace that was common before the pandemic.

On Wednesday, the latest Job Openings and Labor Turnover Survey showed that job openings remained high in October, even as the number of open positions fell during the month. Crucially, the number of layoffs during the month was unchanged.

Addressing the labor market at an event on Wednesday, Jerome H. Powell, the Fed chair, said there were “only tentative signs” that the labor market was moderating and wage growth remained rapid.

“Despite some promising developments, we have a long way to go in restoring price stability,” Mr. Powell said.

Mr. Powell also said a slowdown in the pace of the Fed’s interest rate increases might be possible at its meeting this month.

Oil prices slipped after diplomats from the European Union agreed on Friday to set a top price of $60 per barrel for Russian oil, and just before the Organization of Petroleum Exporting Countries and Russia, collectively known as OPEC Plus, will meet on Sunday to consider production levels.

The price of West Texas Intermediate crude oil fell 1.4 percent to about $80 a barrel, leaving oil prices up more than 6 percent since the beginning of the year. The price of Brent crude oil, the global benchmark, fell 1.6 percent to about $85 a barrel.

The U.S. dollar was relatively unchanged against a basket of major currencies on Friday but remains up more than 9 percent since the beginning of the year.