Dow Jones Industrial Average Drops As US Jobs Number Raises Prospect Of Fed Rate Hike

This story was updated at 4:20 p.m. EST.

The strong American jobs report Friday raised the odds of a U.S. Federal Reserve interest-rate liftoff in December, which put downward pressure on equities as investors anticipate the beginning of the end of a yearslong stock-market rally fueled by cheap borrowing costs. Meanwhile, bond yields rallied as they typically do when investors move away from stocks.

“The October payroll data makes a December move almost a certainty, with the FOMC [Federal Open Market Committee] bent on delivering their first move before year-end,” Steve Blitz, chief economist at ITG Investment Research, said in a research note.

The robust jobs report had the U.S. dollar surging against major global currencies, hitting a 2 1/2-month high against the yen and a 6 1/2-month high against the euro. It also sent the benchmark 10-year U.S. Treasury note up 3.92 percent as investors reposition themselves in preparation of the first U.S. interest-rate hike in almost a decade.

A U.S. rate hike will increase borrowing costs -- affecting everything from revolving small-business loans to credit-card interest rates -- and will adversely impact global currencies, emerging-market growth and corporate earnings.

U.S. markets ended the week with slight gains but eked out their sixth-straight week of gains.

The Dow Jones Industrial Average (INDEXDJX:.DJI) closed up 47.10 points, or 0.26 percent, to 17,911. The S&P 500 index (INDEXSP:.INX) was down a slight 0.71 points, or 0.03 percent, to 2,099. And the Nasdaq composite (INDEXNASDAQ:.IXIC) was up 19.38 points, or 0.38 percent, to 5,147. Four out of the 10 S&P 500 sectors eked out gains on Friday, led by the financial sector. Banking is among the industries that would benefit from a rate increase because banks make more money from taking deposits and making loans as interest rates rise.

Goldman Sachs Group Inc. (NYSE:GS) led advancers on the Dow, while UnitedHealth Group Inc. (NYSE:UNH) led decliners.

Global Markets

Key Asian markets ended the week mixed. Friday, Japan’s Nikkei climbed 149.19 points, or 0.78 percent, to 19,266, its third consecutive daily gain on a weakening yen that helps the country’s exports. The Shanghai Composite Index extended its rally Friday after touching a seven-week high on Thursday, gaining 67.21 points, or 1.91 percent, to 3,590. Investors were upbeat that Beijing would implement further stimulus measures to curb a slowdown in growth in the world’s second-largest economy. Hong Kong’s Hang Seng index lost 183.71 points, or 0.80 percent, to 22,867, despite gains in the mainland market.

European shares wavered as markets had a chance to react to the U.S. jobs report showing strong employment numbers. London’s FTSE, which was hit this week after the Bank of England’s gloomy forecast for the British economy, lost 11.07 points, or 0.17 percent, to 6,354 Friday. France’s CAC 40 gained 4.11 points, or 0.08 percent, to 4,984. Germany’s DAX gained 100.29 points, or 0.92 percent, to 10,988.

Oil Prices

Global oil prices dropped a third consecutive day on the prospects that a Fed rate hike would have a short-term adverse impact on oil demand. West Texas Intermediate crude oil, the U.S. benchmark for oil prices, fell 1.64 percent to $44.46 per barrel for December delivery on the New York Mercantile Exchange. Brent crude, the global benchmark for oil prices, lost 0.83 percent to $47.58 on the London ICE Futures Exchange.

Friday's Earnings-Season Market Movers

Some of the companies whose share prices moved considerably Friday in the wake of third-quarter financial reports are as follow:

Cigna Corp. (NYSE:CI) said before markets opened in New York that its July-September revenue rose to $9.38 billion from $8.73 billion in the same three months of last year. Net income for the Connecticut-based health insurer increased to $547 million, or $2.10 per share, from $534 million, or $2.01 per share. Cigna beat Wall Street estimates on adjusted earnings but missed on revenue, which sent the company’s share price down early in the day. But the stock regained ground, closing Friday 0.31 percent higher, to $132.81. Cigna’s share price is up 29.05 percent for the year.

A similar narrative played out with Cigna’s rival Humana Inc. (NYSE:HUM), which before markets opened reported lower-than expected revenue growth in the July-September quarter, to $13.36 billion this year from $12.24 billion last year. Net income grew to $314 million, or $2.09 per share, from $290 million, or $1.85 per share. The Kentucky-based insurer’s revenue miss sent its share price down 1.01 percent on Friday, to $177.24. Humana’s stock is up more than 23.4 percent for the year.

Walt Disney Co. (NYSE:DIS) after markets closed Thursday reported higher revenue in its July-September quarter, to $13.51 billion this year from $12.39 billion last year. The California-based media giant increased its net income to $1.61 billion, or 95 cents per share, from $1.50 billion, or 86 cents per share. Investors shrugged at Disney’s revenue miss, looking to better-than-expected performance in the company’s cable unit, which is anchored by ESPN. Disney’s share price rose 2.38 percent on Friday, to $115.69. Disney’s stock is up 22.83 percent for the year.

Processed-food behemoth Kraft Heinz Co. (NASDAQ:KHC) after markets closed Thursday said it had lower-than-expected revenue and profit for the July-September quarter. The Pennsylvania-based maker of Oscar Mayer wieners and Planters brand peanuts reported sales of $6.36 billion and losses of $303 million in its second earnings report since Kraft and Heinz merged this year. The company’s shares dropped 4.52 percent on Friday to $72.01. The stock down 1.3 percent for the year.

Shake Shack Inc. (NYSE:SHAK) after markets closed Thursday said it had its third consecutive quarter of growth in the July-September period since the New York-based burger and frozen-custard chain went public this year. The company reported sales of $53.3 million and earnings of $1.53 million, or 10 cents per share. Both its revenue and earnings beat analysts’ forecasts, which sent the firm’s stock price up early in the day. But it closed Friday down 2.15 percent, to $50.01. The company’s stock is up almost 8.87 percent since its initial public offering.

Nvidia Corp. (NASDAQ:NVDA) after markets closed Thursday reported higher-than-expected revenue and profit. The California maker of powerful graphics cards said it grew sales to $1.31 billion this year from $1.23 billion last year in the July-September quarter. Net income rose to $246.0 million, or 44 cents per share, from $173.0 million, or 31 cents per share. Nvidia said it expected more business from the gaming and automotive industries (its processors are used in vehicle infotainment systems). The news lifted the company’s share price by 13.86 percent to $31.55 on Friday.