Stocks swerve lower as economy, yield pressures heat up

NEW YORK — Stocks are swerving through another rocky ride Friday, as investors struggle to figure out what an encouraging report on the economy and the recent march higher for bond yields should mean for the market.

The S&P 500 was 0.5% lower as of 11:36 a.m. Eastern time, though the modest move belies big swings from earlier. At the start of trading, it had jumped to an immediate 1% gain, only for it all to disappear within a half hour and disintegrate into a 1% loss.

Other stock indexes went through similar zigzags. The Dow Jones Industrial Average was down 47 points, or 0.2%, at 30,876 after giving up an earlier 334 point gain. The Nasdaq composite was 1.7% lower after flipping from a gain of 1.2% to a loss of 2.6%.

The spark for all the uncertainty was a government report released before stock trading began on Wall Street, which showed that employers added hundreds of thousands more jobs last month than economists expected. That’s an encouraging sign for the economy, and it helped lift Treasury yields, with the closely watched 10-year yield momentarily topping 1.60%.

The yield later fell back, down to 1.56% in midday trading. But that’s still higher than its 1.55% yield from late Thursday and the roughly 0.90% level that it was at during the end of last year.

For about a year, the stock market kept climbing on expectations that an economic recovery was on the way, even when the coronavirus pandemic meant conditions at the time seemed very bleak. Now that the recovery is much closer on the horizon, the market is unsettled because one of the main underpinnings of the incredible run for stocks is under threat: ultralow interest rates.

Yields have been marching higher with rising expectations for the economy’s growth and for the inflation that could accompany it. Economists have been upgrading their forecasts for this year as more people get COVID-19 vaccines, businesses reopen and Congress gets closer to pumping another $1.9 trillion of financial aid into the economy.

The worry is that inflation could take off, or something else could happen to jack yields up even further.

Higher yields put downward pressure on stocks generally, because they can steer away dollars that had been pouring into the stock market and into bonds instead.

The pressure is most intense on stocks that look the most expensive, relative to their profits, as well as those bid up on expectations of fast growth far into the future. Critics say most stocks across the market look expensive after prices rose much, much faster than profits, and warnings about a possible bubble have been on the rise.

But tech stocks and other high-growth companies in particular have been at the center of the downdraft. They soared more than the rest of the market for much of the pandemic, and in the years preceding it. On Friday, Tesla, Amazon and Apple were three of the heaviest weights dragging on the S&P 500.

It’s another reminder of how dominant Big Tech stocks have become in the market. If inflation does ultimately remain under control, as the Federal Reserve’s chair and many economists expect, the general expectation along Wall Street is that most stocks could benefit.

A stronger economy would mean bigger profits for companies, which would allow their prices to hold steady or rise, even if rates are climbing.

Tech stocks would likely also see some improvement in their profits, but not to the same degree as companies whose businesses are closely tied to the strength of the economy, such as banks or travel companies.

But even if the majority of companies end up rising, tech-oriented companies carry so much weight in broad-market indexes that weakness for them could hold down the S&P 500. Five Big Tech stocks alone make up more than 21% of the S&P 500 by market value.

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AP Business Writer Elaine Kurtenbach contributed.