Dow Jones, S&P 500, Nasdaq slide on shocking January jobs report as unemployment rate reaches lowest level since 1969

9.35am: January hiring surge sends stocks lower

US stocks have started the day in the red after January’s non-farm payrolls job report blew away expectations, with the unemployment rate reaching the lowest level since 1969 at 3.4%.

The strength of the labor market has crushed investor optimism around the Fed’s next move, with any hope that the central bank may soon pause rate hikes swiftly abandoned.

Just after the market opened, the Dow Jones Industrial Average was down 132 points or 0.4% at 33,922 points, the S&P 500 had lost 43 points or 1% at 4,138 points, and the Nasdaq Composite had shed 211 points or 1.7% at 11,989 points.

BRI Wealth Management portfolio manager Tom Hopkins said that this jobs report gives the Fed more of a runway to continue edging interest rates up.

“Today’s reading is more evidence that the US labor market continues to run extremely tight and implies that jobs growth remains strong,” he said.

“Whilst today’s data is surprising, I do expect unemployment to begin creeping up over the coming months. We’ve seen a lot of US companies preparing for an economic slowdown in the recent earnings season and firms, particularly in the technology sector, continue to lay off large numbers of staff, clearly this will take time to filter down into the numbers.”

ING chief international economist James Knightly said the employment data was a real surprise and difficult to explain.

“We have to just take that on the chin and say despite seven consecutive monthly falls in residential construction output, three consecutive falls in industrial production and consumer spending disappointing in November and December firms are still happy to hire,” Knightley said.

“Maybe the Fed will keep hiking for longer, but we will need to see the economy suddenly rebound to make this great job news continue.”

8.40am: Stocks futures fall as employment data surprises

The US labor market continues to show strength despite inflationary pressures and rising interest rates, adding 517,000 non-farm payroll jobs in January, according to new data from the US Bureau of Labor Statistics.

This figure far exceeded the Street’s expectation of 185,000, and more than doubled the number of jobs added in December at 223,000.

The unemployment rate came in at 3.4%, below the expected 3.6%. 

“Job growth was widespread, led by gains in leisure and hospitality, professional and business services, and healthcare,” the Bureau said.

“Employment also increased in government, partially reflecting the return of workers from a strike.”

Futures for the three major US indices fell further into the red following the release of the jobs report, with the Dow Jones Industrial Average down 0.7%, the S&P 500 down 1.1%, and the Nasdaq Composite down 1.8% in pre-market trading.

AvaTrade chief market analyst Naeem Aslam said that today’s NFP figures were a “mind-blowing number,” adding that the reading was so good that many had to check the reading twice to make sure that there was nothing wrong there.

“The data has confirmed that the US labor market is not only strong but it is robust, and concerns about recessions are unnecessary,” he said.

“In terms of market reactions, the initial reaction has been negative as traders are concerned that the Fed may adopt a more hawkish monetary policy given the strength of the labour market and their target of inflation reading. However, the reality is that today’s number is good for the US economy and this is likely to encourage traders to back riskier assets once the dust settles.”

6.30am: NFPs out before the opening bell

Wall Street is likely to open lower as disappointing quarterly results from Apple, Amazon and Alphabet halt a rally in tech stocks and as investors await the first non-farm payrolls (NFPs) report for 2023 that is expected to show a softening in the US labor market. 

Futures for the Dow Jones Industrial Average fell 0.4% in Friday pre-market trading, while those for the broader S&P 500 index dropped 0.9% and contracts for the Nasdaq-100 shed 1.6%.

The Nasdaq jumped 3.3% to 12,201 on Thursday, buoyed by a 23% surge in Meta Platform’s share price after the company announced a $40 billion share buyback with its quarterly results. The S&P 500 added 1.5% to 4,180, hitting its highest point since August, but the Dow closed 0.1% lower at 34,054.

“After a generally strong showing from US markets, sentiment soured slightly after the closing bell,” commented Richard Hunter, head of markets at interactive investor.

“Big tech shares were at the centre of attention, with the Nasdaq index building on an extremely strong start to the year,” he added. “(With) hopes of cooling inflation and a retreat from aggressive interest rate hikes, there has been something of a return to growth shares, having suffered a difficult time last year as the value trade became the focus of investor activity.”

While Meta lifted sentiment across the sector, Hunter said some of the strength may unwind following disappointing updates from Apple, Amazon and Alphabet after the closing bell on Thursday.

“The next piece of the economic jigsaw will follow this afternoon with the release of the latest non-farm payrolls data,” Hunter added. 

The NFPs, out at 8:30am Eastern Time before the market opens, are expected to show the US economy added 185,000 jobs in January, down from 223,000 the previous month, in what would be the lowest reading for two years. At the same time, unemployment is expected to tick up slightly to 3.6%, with hourly wage inflation remaining flat. 

“Such a reading would add fuel to the fire that the end of the Federal Reserve aggression is nearing, although any sharp positive deviations would unsettle investors and prompt a rethink around the central bank’s next move,” Hunter said.