Stocks were lower in early trading Friday following a surprisingly strong October jobs report that sets the stage for a potential interest rate hike next month.
Bank stocks rose, helped by the possibility of higher interest rates, while dividend-paying stocks like utilities sank. Bond yields rose sharply as bond investors reacted the jobs number as well.
KEEPING SCORE: The Dow Jones industrial average lost 45 points, or 0.3 percent, to 17,818 as of 10:05 a.m. The Standard & Poor's 500 index lost 11 points, or 0.5 percent, to 2,088 and the Nasdaq composite lost 23 points, or 0.5 percent, to 5,103.
JOBS, JOBS, JOBS: The strong October jobs report makes the possibility for an interest rate hike by the Fed next month a much more likely scenario now, which would mean an end to the nearly seven years of near-zero interest rates that investors have enjoyed. U.S. employers added 271,000 jobs, and the unemployment rate dipped to a fresh seven-year low of 5 percent from 5.1 percent. The burst of hiring, the most in 10 months, filled jobs across a range of industries.
There was a lot riding on the October jobs report for investors. Fed policymakers have made it clear that they want to raise interest rates sooner rather than later, and are just waiting for the data to show enough robust growth to step in.
Considered a less likely possibility as recently as this summer, a December rate hike is looking far more certain. Fed fund futures, which are securities that bet on which way the Fed will move interest rates, now show a 74 percent chance of the central bank raising rates in December, up from 60 percent on Wednesday.
GAINERS AND LOSERS: The possibility of higher interest rates changes the dynamics for investors in several ways. Dividend-paying stocks, which are typically bought for their income when interest rates and bond yields are low, dropped sharply on Friday. The Dow Jones utility index, a basket of 15 utility stocks dropped more than 3 percent in early trading.
In contrast, bank stocks rose sharply as higher interest rates mean banks can charge more for lending. JPMorgan Chase rose $1.83, or 3 percent, to $68.28, Bank of America rose 58 cents, or 3.4 percent, to $17.89 and Morgan Stanley rose $1.12, or 3.3 percent, $35.01.
BONDS SELL OFF: The fixed income market saw major declines. Bonds become less attractive in a rising interest rate environment because investors would be buying an interest rate that could be lower than the ones available in the months to come.
The benchmark U.S. 10-year Treasury note jumped to a yield of 2.32 percent, up from 2.23 percent on Thursday, a major move for that normally-staid investment. Bonds with shorter durations saw even more distorted moves. The two-year Treasury jumped from a yield of 0.82 percent to as high as 0.92 percent after the jobs numbers were released.
ENERGY: In energy markets, U.S. crude oil fell 42 cents to $44.77 a barrel in electronic trading in New York. Brent crude, which is a benchmark for international oils, rose 8 cents to $48.06 a barrel in London.
CURRENCIES: The U.S. dollar advanced against other major currencies following the jobs numbers. The euro fell against the dollar to $1.0745 and the dollar rose against the Japanese yen to $122.77.