Dow, S&P 500 snap 3-week winning streak as stocks fall after U.S. jobs report, Big Tech earnings

By Christine Idzelis and Joseph Adinolfi

Amazon shares surged Friday; Apple fell

U.S. stocks ended lower Friday, with the S&P 500 and Nasdaq Composite seeing their fourth straight day of losses for their longest losing streak since early May, as investors parsed the July jobs report from the Department of Labor and Big Tech earnings from Amazon and Apple.

How stock indexes traded

For the week, the Dow slid 1.1%, the S&P 500 declined 2.3% and the Nasdaq sank 2.8%, according to Dow Jones Market Data. The Dow and S&P 500 each snapped three straight weeks of gains, while the S&P and Nasdaq booked their biggest weekly percentage drops since March.

What drove markets

Stocks fell Friday, giving up earlier gains after the latest labor-market report showed the U.S. economy continued to create jobs in July while average hourly earnings rose.

The U.S. economy added 187,000 jobs last month, with the unemployment rate falling to 3.5% from 3.6% in June, according to a report Friday from the Bureau of Labor Statistics. The report also showed average hourly earnings rose 0.4% in July, up 4.4% over the past 12 months.

Last month's wage growth was slightly higher than expected, while the number of jobs created was a bit softer than the 200,000 anticipated by Wall Street analysts.

The jobs report was "pretty benign," being neither too hot nor too cold, said Randy Frederick, Charles Schwab's managing director of trading and derivatives, in a phone interview Friday. "Recession seems highly unlikely in 2023," while traders, after digesting the employment data, still expect the Federal Reserve to hold interest rates steady at its meeting next month, he said.

Slowing job growth may bolster hopes that the Fed's rate hikes could succeed in cooling the economy -- and inflation with it -- without leading to a hard landing.

However, many economists and analysts flagged the slightly hotter-than-expected wage growth in July as a potential sticking point for the Fed. The annualized 4.4% rise is well above the Fed's target of 2% inflation, said Bankrate senior economic analyst Mark Hamrick, in emailed commentary Friday.

Adam Farstrup, head of the multi-asset team for the Americas at Schroders, said by phone Friday that his base case is for a "soft landing" for the U.S. economy, but he's monitoring wage growth and a recent rise in oil prices as possible sources for a potential second round of inflation.

Read:Oil scores 6th straight weekly rise after supply cuts

Investors will get a reading on July inflation next week, with monthly data from the consumer-price index due out on Aug. 10.

Meanwhile, Treasury yields dropped after the jobs report. The yield on the 10-year Treasury note BX:TMUBMUSD10Y fell 12.8 basis points Friday to 4.06%, its largest daily decline since early May based on 3 p.m. Eastern Time levels, but remained up for the week, according to Dow Jones Market Data.

Investors also continued to digest quarterly earnings results, including reports from Big Tech companies Apple Inc. (AAPL) and Amazon.com Inc. (AMZN) after the market's close on Thursday. Amazon was among the best-performing stocks in the S&P 500 on Friday, up 8.3%, while shares of Apple tumbled 4.8% to finish as the Dow's biggest loser, according to FactSet data.

"Apple is probably getting beaten up because its guidance was not spectacular," said Charles Schwab's Frederick. Overall, earnings season for the second quarter "started off really good and it's not so great now."

With the most of companies now having reported their results, overall earnings growth has recently fallen below expectations for the period, dropping more than anticipated year over year, he said. Analysts are expecting the second quarter to be this year's quarterly earnings trough, according to Frederick.

The S&P 500 is up 16.6% so far in 2023, according to FactSet data.

"To see further upside in the equity market, we do think you would have to see much greater optimism about the path of earnings" in the third and four quarters, said Schroders's Farstrup. As for buying opportunities, "the cyclical areas are really what we are most interested in," he said, pointing to financials and industrials as examples.

Companies in focus

Steve Goldstein contributed to this article.

-Christine Idzelis

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

08-04-23 1650ET

Copyright (c) 2023 Dow Jones & Company, Inc.