NEW YORK — New data showing blistering job growth in the U.S. sent stocks tumbling Friday, with the potential for higher corporate earnings doing little to assuage investors’ concern over the speeding economy’s impact on interest rates.
The jobs data gave further credence to many analysts’ predictions that the Federal Reserve would hike the benchmark lending rate by at least a quarter percentage point at its next meeting in June. Some analysts believed that investors’ angst over rates, which has kept stocks down for weeks, might soon run its course.
“Eventually, we’re going to have to come to the realization that the reason rates are rising is because of solid economic growth,” said Chris Conkey, deputy chief investment officer at Evergreen Investments. “The Fed has clearly indicated that they’re going to raise rates, and maybe that will let us start the transition into other opportunities.”
After remaining mixed for most of the day, giving hope that rate concerns may be waning, stocks moved substantially lower. In midafternoon trading, the Dow Jones industrial average dropped 77.36, or 0.8 percent, to 10,163.90.
Broader stock indicators were mixed. The Standard & Poor’s 500 index was down 6.19, or 0.6 percent, at 1,107.80, and the Nasdaq composite index lost 5.11, or 0.3 percent, to 1,932.63.
The latest payroll figures from the Labor Department showed that the economy added 288,000 jobs in April, far outstripping economists’ predictions of 165,000 new jobs. March’s huge figure of 308,000 was revised higher to 337,000, and the data showed a jump in manufacturing jobs for the past three months, which were thought to be lagging. The Labor Department also reported a drop in the overall unemployment rate from 5.7 percent to 5.6 percent.
The economy’s strengths could be compelling for investors, if they have indeed moved past interest rate concerns. The jobs data showed the prospect of higher long-term earnings growth as companies appeared to be adding jobs and expanding their enterprises instead of merely eking additional productivity out of current operations.
“You look at this data, and you see that corporate demand must be stronger than we even think,” said Brian Pears, head equity trader at Victory Capital Management. “The only way companies feel they can grow revenue at this point is to hire staff, and that’s really good.”
The Fed, which promised this week to take a “measured” approach to raising interest rates from their 46-year low of 1 percent, will likely remain cautious about raising rates too quickly, as an increase in the cost of capital borrowing could harm further earnings growth.
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