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Stock Fall Following U.S. Jobs Report--4th Update

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12/07/2018 | 05:14pm CET

By Riva Gold

U.S. stocks turned lower Friday, putting major indexes on track for declines of more than 3% in a volatile week.

In recent sessions, stocks and bonds have swung wildly on the prospect of tighter U.S. monetary policy, as higher borrowing costs could hurt the economy at a time when markets are volatile and global economic growth is already showing signs of slowing.

The jobs data briefly helped calm those fears. Also reassuring, according to some traders: A report from The Wall Street Journal Thursday that Federal Reserve officials are considering whether to signal a new wait-and-see mentality at their meeting in December. That could slow the pace of rate increases in 2019.

While the Dow Jones Industrial Average and the S&P 500 opened with slight gains, as the day wore on both indexes turned lower. The blue-chip index lost more than 200 points, or 0.9%, in recent trading, the S&P 500 also declined 0.8% and the Nasdaq Composite fell 1.1%. All three indexes were on track to end the week 3% or more lower.

U.S. government bond yields rose, with the yield on the benchmark 10-year U.S. Treasury note at 2.891%, according to Tradeweb, compared with 2.872% Thursday. Yields rise as bond prices fall.

"The list of worries is very, very long these days," said Erik Davidson, chief investment officer for Wells Fargo Private Bank. "Investors are on pins and needles worried about something at all times, whether it's the China trade deal, Brexit, the inverted yield curve or monetary policy."

He added that the latest report shows no signs of the U.S. economy overheating as unemployment remains low and wages are still growing, something that he finds "rather comforting." On Friday, the Labor Department said employers slowed their pace of hiring in November, but the unemployment rate remained at a multidecade low.

The declines come a day after stocks around the world fell sharply Thursday when the arrest of a top Chinese tech executive and a steep drop in oil prices added to an already volatile trading environment.

The Dow industrials fell as much as 3.4% before recovering almost all of those losses in the final hour of the session after The Journal's report on the Fed taking a wait-and-see mentality. On Friday, oil rose after the Organization of the Petroleum Exporting Countries and Russia agreed to a significant production cut.

Investors have now dialed down expectations for a December interest-rate increase, with markets currently pricing a 75% probability, down from 83% a week ago, according to CME Group.

Looking further ahead, expectations for two or more increases by March have fallen to around 32% from 57% a month ago.

For markets, "It's really a mix of resetting and adjusting to the growth outlook in the U.S., which is still OK but worse than before, and some negative surprises on the international scale," said Astrid Schilo, a multiasset strategist at Mediolanum Asset Management.

A range of other concerns have driven sharp swings in markets this week, and are expected to continue to amplify investor jitters: Parts of the yield curve, or the gap between long and short-dated U.S. Treasurys, turned negative this week, fueling fresh worries about the health of the American economy.

Separately, Trump administration officials said they planned to take a tough stand in their 90-day trade negotiations with China or impose further tariffs, reigniting worries about global trade.

American companies that import products are paying record amounts in customs duties.

In this environment, most major indexes in the U.S., Europe and Asia were still on track for sharp weekly declines, even with the recent bounce.

On Friday, European equities bounced back from Thursday's declines, with every sector in positive territory. Still, the pan-European index was on track to end with a weekly loss.

Asian markets recovered or stabilized after very steep drops Thursday. Shares of energy companies were mostly lower following oil price declines, while the technology sector largely rebounded.

Japan's Nikkei rose 0.8%, while the Shanghai Composite was flat and Hong Kong's Hang Seng edged down 0.35%.

Write to Riva Gold at riva.gold@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
CHINA-SHANGHAI COMP -0.81% 2576.92 End-of-day quote.-22.24%
DJ INDUSTRIAL 0.35% 23675.64 Delayed Quote.-4.56%
HANG SENG -1.07% 25837.92 Real-time Quote.-12.75%
NASDAQ 100 0.67% 6491.5163 Delayed Quote.0.81%
NASDAQ COMP. 0.45% 6783.9114 Delayed Quote.-2.17%
NIKKEI 225 -1.81% 21118.43 Real-time Quote.-5.53%
S&P 500 0.01% 2546.16 Delayed Quote.-4.78%
WTI -6.18% 45.99 Delayed Quote.-18.42%
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