Exploring the Impact of the January Jobs Report on US Stock Markets

US stocks fell on Monday as investors faced further earnings mix and assessed the outlook for interest rates following January’s Blowout Jobs report.

The S&P 500 (^GSPC) ended down 0.6%, while the Dow Jones Industrial Average (^DJI) fell a modest 40 points, or 0.1%. The tech-heavy Nasdaq Composite (^IXIC) fell 1%.

Dell Technologies (DELL) will cut about 6,650 jobs, or about 5% of its global workforce, the company said, becoming the latest in a wave of tech companies to announce layoffs. Shares fell 3% on Monday.

In a memo to employees obtained by Bloomberg, co-chief operating officer Jeff Clarke said the company was struggling with market conditions that “continue to erode with an uncertain future.”

Elsewhere in stock action, Bed Bath & Beyond (BBBY) shares are up as much as 115%, each climbing above $6.50 as a recent rally in meme stock gathers momentum.

Elsewhere in the market, the US dollar is up for a third straight day after rising 1% following Friday’s jobs report.

Oil prices rose, with West Texas Intermediate (WTI) crude up 1.4% to $74.40 a barrel.

Early Monday’s moves come after shares fell in the previous trading session but closed higher for the week. Despite Friday’s declines, stock markets are on an uptrend this year. For 2023 to date, the S&P 500 is up 7.7% at Friday’s close, the Nasdaq is up 14.7% after rising for five straight weeks, and the Dow is up 2.4%.

Whether this momentum can be sustained will be a big issue in the week ahead, especially after the government’s monthly jobs report showed that the workforce rose by 517,000 in the last month. For investors, those prospects that the US Federal Reserve could pause rate hikes this year have dampened expectations that have fueled this year’s rally.

“Job creation in January was stunning and contrary to the market narrative earlier in the week, where the Fed not only paused but reversed course and cut interest rates later this year,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management, in a note. “Unless this jobs strength turns out to be a month-long outlier, the Fed’s hawks are likely to step in and keep rates higher for longer.”

Investors will get more insight into the Federal Reserve’s reaction to the latest jobs data when Fed Chair Jerome Powell speaks at the Economic Club of Washington, DC on Tuesday.

“Looking ahead, the key question for markets is whether Powell’s dovish stance was intentional or accidental,” the BofA team said, adding that Powell could adopt a more aggressive tone during his performance at the Economic Club this week. “We believe the Fed’s resolve to disinflation is genuine, and it has always been difficult for Powell to send an aggressive message after slowing the pace of rate hikes for the second time in as many meetings.”

Federal Reserve Chair Jerome Powell addresses reporters after the Fed raised its target interest rate by a quarter of a percentage point during a news conference at the Federal Reserve Building in Washington, the United States, February 1, 2023. REUTERS/Jonathan Ernst

In the meantime, even if earnings season slows down, Wall Street will have a list of financials to look through this week. Among the names to watch most closely are Walt Disney (DIS), Uber Technologies (UBER), PayPal (PYPL) and PepsiCo (PEP).

The proportion of S&P 500 companies reporting upside earnings surprises was flat over the past week, but the magnitude of upside earnings surprises declined, largely due to disappointing results from megacap tech giants, according to FactSet Research.

“As a result, the fourth-quarter earnings decline today is larger than at the end of last week and compared to the end of the quarter,” noted John Butters, FactSet’s senior earnings analyst. “If the index reports an actual earnings decline for Q4 2022, it will be the first year-on-year earnings decline reported by the index since Q3 2020.”

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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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