Stocks were modestly lower on Friday as investors assessed a new quarter of trading and a troublesome bond market recession indicator.
The S&P 500 and Nasdaq Composite was down roughly 0.4%. The Dow Jones Industrial Average slipped 92 points, or 0.2%, after being up more than 100 points earlier in the day.
The moves followed a recession signal from the bond market that was triggered after the closing bell Thursday and again on Friday morning. The 2-year and 10-year Treasury yields inverted for the first time since 2019.
For some investors, it’s a signal that the economy is headed for a possible recession, though the inverted yield curve does not predict exactly when it will happen and history shows it could be more than a year away or longer.
“The inversion of the yield curve should not be dismissed. It suggests risks are rising and the market is concerned about the Federal Reserve’s (Fed) ability to maneuver a soft landing,” Keith Lerner, co-CIO and chief market strategist at Truist Advisory Services, said in a note. “Historically, it’s been a relatively accurate indicator, but not perfect, in calling a recession.”
Bank stocks struggled on Friday after the inversion, with Citigroup losing 2.2%.
Chip stocks fell again on Friday, with Intel dropping more than 4% and Advanced Micro Devices losing 2.3%, amid growing concern about personal computer demand.
Wall Street is fresh off its first negative quarter in two years, but there were positive signs for investors on Friday.
The price of U.S. benchmark West Texas Intermediate fell below $100 per barrel as the Biden administration pledged to release more strategic oil reserves. Energy prices surged earlier this year as Russia’s invasion of Ukraine disrupted global supply, leading to some worry that the high prices could hurt economic growth.
Investors were also digesting the official jobs report for March, which showed the U.S. economy adding 431,000 jobs. The result was below the composite estimate of 490,000 from Dow Jones but above some of the lower end estimates.
“With some sentiment indicators in the US pointing in the wrong direction, the jobs data also came in weaker than expected, but not as bad as many would have feared given the backdrop,” said Neil Birrell, Chief Investment Officer at Premier Miton Investors. “Job vacancies are still being filled and wage growth remains robust, suggesting that the economy is in good shape. That is the case for now; the key will be the impact on the jobs market and broad economy as rates jump higher and growth slows.”
On the positive side, Materials stocks moved higher, with Freeport-McMoRan rising more than 3%. Health care and energy stocks also outperformed.
U.S.-listed Chinese stocks jumped on Friday after a report that China was considering sharing company audits with foreign regulators.
The three major averages slumped on Thursday to close out the first negative quarter for stocks in two years, with losses accelerating in the final hour of trading. The Dow and S&P 500 ended the quarter down 4.6% and 4.9% respectively during the period, and the Nasdaq dropped more than 9%.
The start of the Fed’s rate hiking cycle, persistently high inflation and the ongoing war in Ukraine contributed to the rough quarter for stocks.
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There were some more negative economic readings on Friday, with February construction spending data and March manufacturing data from ISM coming in below expectations.
Correction: This article was updated to accurately reflect trading in U.S. futures that started Thursday evening. An earlier version misstated the session. Shannon Saccocia is chief investment officer at SVB Private Bank. An earlier version misstated her firm.