CNN: January 7, 2022

The jobs recovery may be losing steam. But the unemployment rate continued to fall, and workers are still bringing home bigger paychecks.

Investors don’t seem sure what to think about those mixed messages.
Stocks closed lower Friday after the US government reported that just 199,000 jobs were added in December, significantly less than economists expected. The Dow fell about 5 points, ending the day flat after giving up earlier gains.
The S&P 500 ended down 0.4% and the Nasdaq fell 1% to close a choppy trading day. Both indexes had opened the session higher.
Although the headline jobs numbers were disappointing, the government also said that wages rose 4.7% over the past 12 months. That could bode well for consumer spending, even as it may also be raising fears that the Federal Reserve will step up plans to raise rates in order to fight inflation.

“Wage growth being strong and the unemployment rate declining more than expected puts the Fed on a more hawkish trajectory with rate hikes,” said Yung-Yu Ma, chief investment strategist with BMO Wealth Management. “The economy is closer to full employment and the market is coming to terms with the implications of that.”
The market tumbled Wednesday after minutes from the Fed’s latest meeting last month showed that some central bankers were growing increasingly nervous about inflation.
Wall Street interpreted that to be a sign that the Fed may raise short-term rates more aggressively this year than originally expected.
“Inflation pressures are alive and well,” said Dec Mullarkey, managing director of investment strategic research and initiatives at SLC Management. “Today’s jobs report raises the possibility of a March rate hike. Those odds seemed remote at the end of last year.”
However, the mixed jobs numbers may lead the Fed to only gradually raise rates this year. If that’s the case, corporate earnings growth should remain relatively strong, and the economy likely will continue to post solid gains.
Still, stocks are off to a sluggish start in 2022 after enjoying healthy gains last year. The Dow was flat this week but the other two major indexes finished lower, with the S&P 500 down 1.8% and the Nasdaq already falling more than 4% this year.
Bank stocks, however, rose Friday and were up sharply for the week. Investors are betting that Fed rate hikes will be gradual enough to not hurt demand for mortgages and other loans, and that higher rates will also make lending more profitable for financial firms.
“We need to see how the inflation numbers come in,” said Rob Dishner, senior portfolio manager on the multi-sector fixed income team with Neuberger Berman.
Along those lines, the yield on the benchmark US 10-year Treasury bond rose to about 1.77% Friday after the jobs report. That’s the highest level since January 2020.