Tech Bounce Fails to Hold as Jobs Angst Cools U.S. Stock Futures

(Bloomberg) -- A strong dose of technology earnings wasn’t enough to keep U.S. stock futures aloft as a hotter-than-expected employment report pushed up bond yields, pressuring the valuation case for equities.

After rising as much as 0.8 percent late Thursday, the main exchange-traded fund tracking the Nasdaq 100 Index was down 0.6 percent as of 8:35 a.m. in New York. A security tracking the S&P 500 was down 0.7 percent, at risk of its worst weekly return since 2016.

Yields jumped anew Friday after the Labor Department said nonfarm payrolls rose 200,000 in January, 20,000 more than estimated. The jobless rate held at 4.1 percent, matching the lowest since 2000, while average hourly earnings rose a more-than-expected 2.9 percent from a year earlier, the most since June 2009.

“Any positive surprise in average hourly earnings could easily exacerbate the bearish steepening of the Treasury curve, so if we end up with a better-than-expected jobs number and higher-than-expected wage growth the rout in equities might in fact deepen further,” said Max Kettner, a London-based cross-asset strategist at Commerzbank AG, before the report was released.

Rising 10-year Treasury rates torpedoed a rally in U.S. stocks just before the close Thursday, knocking the S&P 500 down about 20 points from its intraday high and leaving the index little changed on the day. A day earlier, signs the Federal Reserve stiffening its resolve against inflation killed an equity market rally after policy makers said the economy is expected to strengthen in a way that “will warrant further gradual increases” in interest rates. At 2.82 percent, concern is growing that the highest Treasury yields in four years have made it harder to justify owning stocks trading at more than 23 times annual earnings.

“If we were to see evidence of returning labor market bargaining power today, an already bruised Treasury market is likely to react,” William Hobbs, head of investment strategy at Barclays Plc’s wealth management unit in London, said before the report. “The threat in amongst all of this remains a more unruly bond market, which could certainly prompt something darker for stocks.”

The retreat in futures is a blow to bulls after Apple Inc. indicated demand for its iPhone X is brisk and Amazon.com Inc. reported its strongest holiday sales growth in eight years. Thursday afternoon capped the busiest stretch for internet and software results after drops in Microsoft Corp. and PayPal Holdings Inc. pushed the Nasdaq 100 down for the third time in four days Thursday.

Volatility has surged -- a gauge of turbulence in Nasdaq 100 shares touched the highest since Donald Trump’s election Tuesday -- as tech stocks that have in some cases doubled since 2016 report earnings.

“How much is the optimism already expressed in prices?” said Jason Browne, chief investment officer at FundX Investment Group. The market is on edge because “you’ve got the combination of pressure from people rebalancing, pressure from people taking profits, people trying to get themselves in because they’re tired of missing out. We have that tug of war taking place.”

Amazon rose 5.7 percent from its 4 p.m. close. Sales gained 38 percent to $60.5 billion in the fourth quarter, the biggest increase in the period since 2009. Net income was $1.9 billion, or $3.75 per share. Analysts projected earnings of $1.83 per share on sales of $59.8 billion. Amazon said the earnings included a $789 million benefit in the quarter as a result of the new U.S. tax law.

Apple slipped 0.4 percent, reversing a gain. The company forecast lower-than-expected revenue for the current quarter and reported iPhone sales that missed analysts’ forecasts. Concerns about uneven demand were quelled, however, by figures showing the average selling price for its most important product jumped, suggesting customers are gravitating toward its $999 iPhone X.

Google parent Alphabet Inc. slipped 3.7 percent after hours. Fourth-quarter profit missed analysts’ estimates, hobbled by rising payments to web-search partners, higher marketing expenses and troubles at YouTube that weighed on its advertising business during the holiday quarter.

--With assistance from Mark Bergen Mark Gurman Spencer Soper and Sarah Ponczek

To contact the reporters on this story: Elena Popina in New York at epopina@bloomberg.net, Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net.

To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Blaise Robinson, Jeremy Herron

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