Stocks dropped on Friday to round off a roller-coaster week, after data showing weakness in the job market left investors facing newfound uncertainty over the path forward for interest rates and the economy.
The S&P 500 fell over 1 percent in morning trading on Friday, taking the index’s losses for the week to around 2 percent. The index fell into negative territory for the year on Thursday.
Stocks have been choppy all week as investors gauged the inflationary impact of the war with Iran, with oil prices rising sharply as crucial energy exports from the Persian Gulf have ground to a halt. On Friday, Brent crude, the international oil benchmark, crossed $90 a barrel for the first time since April 2024.
The Federal Reserve typically counters rising prices by keeping interest rates elevated, slowing the economy and the pace of inflation. Before Friday’s jobs data, investors had anticipated that the Fed would leave interest rates unchanged until October.
That expectation, however, was predicated on the labor market remaining on a firm footing, allowing the Fed to concentrate on combating inflation without risking a drastic increase in unemployment. The new data has put this narrative to the test. The Labor Department reported a loss of 92,000 jobs in February and a slight uptick in the unemployment rate. The data sets up a tug of war over the path forward: The conflict with Iran is a strong case for rates to remain where they are, while a weakening labor market bolsters the case for a rate cut, with the outcome also likely to affect stock prices and the value of the dollar.
“Today’s numbers may have put the Fed between a rock and a hard place,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management. “Significant weakening in the labor market would support a rate cut, but given the risk that higher-for-longer oil prices could trigger another inflation surge, the Fed may feel compelled to remain on the sidelines.”
The Federal Reserve is still widely expected to leave interest rates unchanged at its meeting this month, but Friday’s jobs data pulled forward investors’ expectations for the next rate cut, which is currently priced into markets for September, with some investors betting it could come as soon as July.
The two-year Treasury yield, which is sensitive to changes in interest rate expectations, fell on Friday, in a further sign of investors increasing their forecasts of rate cuts.
“Well, this is messy,” said Brad Smith, a portfolio manager at Janus Henderson Investors. But he also said that it was unlikely that the Fed would be swayed by one bad jobs report. Investors will still be focused on developments in the Middle East and then next week’s consumer inflation report.
“The emerging narrative from the Fed was one of stability in the labor market,” Mr. Smith said. The jobs data “will call that into question,” he said, “but the institution will certainly not lean on one data point.”
Companies dependent on oil have come under particular scrutiny from investors.
The chief executive of United Airlines, Scott Kirby, said that higher jet fuel prices would have a “meaningful” effect on the airline’s earnings for the quarter that ends in March, according to CNBC. Mr. Kirby made those remarks at an event at Harvard on Thursday. While travel demand remains strong, the price of jet fuel, one of the biggest operational costs for airlines, has risen 58 percent since before the start of the war. As a result, ticket prices may soon start to rise, Mr. Kirby warned.
The share price for United Airlines has fallen 13.5 percent this week. Shares in American Airlines and Delta Air Lines have also both fallen over 10 percent, the threshold for a stock to be considered in “correction,” a market term for a short sharp slide in the value of a company or index.
Cruise operators have also come under pressure. Carnival and Norwegian cruise lines have each fallen around 20 percent this week.
Elsewhere, stocks of the largest private equity firms and private credit managers dropped more than 6 percent in early trading on Friday as investors had new reasons for concern about the safety of the multitrillion dollar market for private loans.
Private credit, a quiet corner of debt markets that has grown rapidly in size in recent years, has attracted increasing concern from investors because of its exposure to beaten down software stocks.
Investors in the stocks of private credit firms including Blue Owl and Ares appeared to be spooked after BlackRock prevented some investor withdrawals from its funds after they exceeded preset limits on how much money could be taken out each quarter.
The move was first reported by The Financial Times. BlackRock said it made the decision in response to an increase in investors seeking to withdraw money from the fund. BlackRock’s stock price fell over 6 percent on Friday.
Maureen Farrell and Niraj Chokshi contributed reporting.
Joe Rennison writes about financial markets, a beat that ranges from chronicling the vagaries of the stock market to explaining the often-inscrutable trading decisions of Wall Street insiders.
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