US Stocks Mixed Friday on Strong Data  12/02 16:10

   Worries about inflation weighed on Wall Street Friday, leaving major indexes 
mixed after a report showed wages for U.S. workers are accelerating, which is 
good news for them but could feed into even higher inflation for the nation.

   (AP) -- Worries about inflation weighed on Wall Street Friday, leaving major 
indexes mixed after a report showed wages for U.S. workers are accelerating, 
which is good news for them but could feed into even higher inflation for the 
nation.

   The S&P 500 ended 0.1% lower after having been down as much as 1.2% earlier 
in the day. The Nasdaq composite also trimmed its deficit, falling 0.2%, while 
the Dow Jones Industrial Average eked out a 0.1% gain. The indexes all notched 
gains for the week.

   Stocks had been on the upswing for the last month on hopes the worst of the 
nation's high inflation may have passed already. That fed expectations for the 
Federal Reserve to dial down the intensity of its big interest-rate hikes. Such 
hikes aim to undercut inflation by slowing the economy and dragging down prices 
for stocks and other investments.

   But Friday's jobs report showed that wages for workers rose 5.1% last month 
from a year earlier. That's an acceleration from October's 4.9% gain and easily 
topped economists' expectations for a slowdown.

   Such jumps in pay are helpful to workers struggling to keep up with soaring 
prices for everyday necessities. The Federal Reserve's worry is that too-strong 
gains could cause inflation to become further entrenched in the economy. That's 
because wages make up a big part of costs for companies in services industries, 
and they could end up raising their own prices further to cover higher wages 
for their employees.

   "Inflation is certainly moving in the right direction," said Adam Abbas, 
co-head of fixed income at Harris Associates, "but the market is still going to 
have to go through some calibration of the risk that we level off at 3% to 4% 
core inflation versus a natural, steady move down to" the 2% goal set by the 
Fed.

   "After such a strong move over the last three and a half weeks," Abbas said 
about expectations for an easing up by the Fed, "maybe the market has gotten a 
little ahead of itself."

   Across the economy, employers added 263,000 jobs last month. That beat 
economists' forecasts for 200,000, while the unemployment rate held steady at 
3.7%. Many Americans also continue to stay entirely out of the jobs market, 
with a larger percentage of people either not working or looking for work than 
before the pandemic, which could increase the pressure on employers to raise 
wages.

   A jobs market that remains much stronger than expected could make an already 
dicey situation for the Fed even more complicated. It's trying to slow the 
economy just enough to prevent the buying activity that gives inflation its 
oxygen, without going so far as to create a recession. The Fed has signaled it 
will likely push the unemployment rate to at least 4.4% in its fight against 
inflation.

   "The most important number for the Fed is probably the wage number," said 
Brian Jacobsen, senior investment strategist at Allspring Global Investments.

   Many traders are still betting on the Fed to downshift the size of its rate 
hikes at its next meeting later this month, as several officials at the central 
bank have hinted. Traders still largely expect the Fed to raise its key 
overnight interest rate on Dec. 14 by half a percentage point, after hiking by 
a heftier three-quarters of a point four straight times.

   But expectations are rising for what the Fed will do in 2023. Treasury 
yields jumped immediately after the jobs report's release on speculation the 
Fed may ultimately hike rates higher than thought a few moments before.

   The yield on the two-year Treasury rose to 4.29% from 4.24% late Thursday. 
The 10-year yield, which helps set rates for mortgages and many other loans, 
fell to 3.49% from 3.51%.

   "Another month with a strong jobs report and torrid wage gains is a reality 
check for where we stand in the inflation fight," said Mike Loewengart, head of 
model portfolio construction at Morgan Stanley Global Investment Office.

   The strong jobs data follows up on several mixed reports on the economy. The 
nation's manufacturing activity shrank in November for the first time in 30 
months, for example, while the housing industry is struggling under the weight 
of much higher mortgage rates. Such data points had raised hopes the Fed's rate 
hikes were taking effect and would ultimately pull down inflation.

   Even though Friday's report showed hiring was stronger than expected, it 
also clearly demonstrated that the nation's downward trend in hiring is 
continuing. November's jobs gains matched the low seen in April 2021, which was 
the weakest since December 2020 when the number of jobs shrank.

   More economists are still forecasting the U.S. economy to fall into a 
recession next year in large part because of higher interest rates.

   "While the Fed won't back away from" a hike of just half a percentage point 
"in December, they still have no clue what they'll do in 2023," said 
Allpsring's Jacobsen.