U.S. stocks fell, with the Standard & Poor’s 500 Index tumbling the most in two months, as better-than-forecast jobs data fueled speculation the Federal Reserve is moving closer to raising interest rates, Bloomberg reported.
Apple Inc. added 0.2 percent, after an earlier 2.3 percent jump, as the company will be added to the Dow Jones Industrial Average, replacing AT&T Inc., which slumped 1.5 percent.
The S&P 500 fell 1.4 percent, the most since Jan. 5, to 2,071.26 at 4 p.m. in New York. The equity gauge lost 1.6 percent for the week. The Dow retreated 278.94 points, or 1.5 percent, to 17,856.78 for its worst drop in five weeks. The Nasdaq Composite Index slipped 1.1 percent. More than 7.4 billion shares changed hands on U.S. exchanges, 7.2 percent above the 30-day average.
“Investors are looking and focusing entirely on what the Federal Reserve will do in the coming months,” Chad Morganlander, a money manager at St. Louis-based Stifel, Nicolaus & Co., which oversees about $170 billion, said by telephone. “Effectively good news in this data point supports the notion that they will raise rates in the not-too-distant future. That scotches the speculative fervor within the equity market.”
Employers added more jobs than forecast in February and the unemployment rate dropped to 5.5 percent, the lowest in almost seven years, showing the labor market is sustaining progress after the best annual performance in 15 years.
The 295,000 advance in payrolls last month followed a 239,000 January increase that was smaller than previously reported, figures from the Labor Department showed Friday in Washington. The median forecast in a Bloomberg survey of economists called for a 235,000 increase. The unemployment rate fell from 5.7 percent while hourly earnings rose less than forecast.
Rate Timing
The Fed has pledged patience on increasing borrowing costs, even as the economy improves. Fed Bank of San Francisco President John Williams, who votes on policy this year, said late Thursday that mid-year may be time for a “serious discussion” about raising interest rates as the labor market nears full employment and inflation rebounds. The central bank next meets on March 17-18.
“Everybody was waiting to see this number the Fed has been really clear saying everything is data dependent and this is one of the large data segments they’ve been looking at,” George Rusnak, co-head of global fixed income at Wells Fargo Investment Institute in Princeton, New Jersey, said by phone.
Attention is on the Fed’s definition of full employment as investors weigh the timing of interest rate increases. The February unemployment rate dropped to the lowest level since May 2008, and is now within the 5.2 percent to 5.5 percent range the central bank considers to be consistent with stable inflation.
Apple, AT&T
The S&P 500 is up 0.6 percent year to date, paring the 2.8 percent gain posted as the benchmark reached a record Monday. It has more than tripled during a bull market that hits its six-year anniversary on Monday.
The Chicago Board Options Exchange Volatility Index rose 8.3 percent Friday to 15.20. The gauge, know as the VIX, lost 36 percent in February for its biggest monthly decline on record.
Nine stocks fell for every one that rose in the S&P 500 as all 10 main groups declined. Each of the 30 stocks in the Dow slid, led by Procter & Gamble Co. and Johnson & Johnson.
Apple will be added to the Dow in the first reshuffling since September 2013, ending a banishment that kept the world’s largest company out for years before a stock split made its shares palatable to the price-weighted measure.
Utilities Plunge
The changes will push the number of technology-related companies in the 30-member gauge to six and boost their influence even more as the world’s largest company by market capitalization joins Microsoft Corp., Intel Corp., International Business Machines Corp., Cisco Systems Inc. and Visa Inc. AT&T is being kicked out after falling 4.5 percent in 2014. The changes will take effect with the start of trading on March 19.
Utility companies in the S&P 500 tumbled 3.1 percent. Selling picked up in the industry as the rate on 10-year Treasury notes spiked 13 basis points to 2.25 percent, the highest this year. The group’s dividend yield of 3.7 percent is the second-highest in the index.
“It’s completely related to the rates market, the data has confirmed that the Fed is on a path to raise rates,” Anwiti Bahuguna, the senior portfolio manager of Columbia Management’s global asset allocation team, said by phone. “You’re seeing an increase in rates and utilities are very much a rates play, whereas financials will continue to benefit as the rates market normalizes.”
Charles Schwab Corp., E*Trade Financial Corp. and Comerica Inc. rose at least 2.4 percent amid speculation that interest rates will move higher.
Bank of America Corp. gained 1.4 percent. The Fed said all 31 big banks subjected to a stress test have sufficient capital to absorb losses during a sharp and prolonged economic downturn. Bank of America was the only bank among the six largest to improve in every capital measure from its performance in last year’s test.
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