Shares shook off an early slide and rose sharply on Friday afternoon, putting the market on track to end a three-day losing streak.
The S&P 500 was 1.9% higher as of 3:43 p.m. Eastern Time after previously rotating more than 360 degrees. The benchmark index had risen to an instant gain of 1% at the start of trading, then quickly fell to a loss of 1% before reloading.
Other stock indices followed similar zigzag lines. The Dow Jones Industrial Average rose 584 points, or 1.9%, to 31,507 after offsetting an earlier loss of 157 points. The Nasdaq network was up 1.5% after previously switching between a 1.2% gain and a 2.6% loss.
The swings in the indices came as investors struggled to figure out what an encouraging report on the economy and the recent surge in bond yields should mean for the market.
The spark for all the uncertainty was a government report that showed employers created hundreds of thousands more jobs in the past month than economists expected. This is an encouraging sign for the economy and has helped raise government bond yields. The closely observed 10-year return was currently over 1.60%.
The yield later fell back to 1.55% in afternoon trading, matching the late Thursday yield, although it was well above its level of around 0.90% late last year.
The stock resurgence on Friday afternoon coincided with the weakening of bond yields.
For about a year, the stock market climbed further on expectation that an economic recovery was looming, even if the coronavirus pandemic made conditions seem very bleak at the time. Now that the recovery is much closer, the market is unsettled as one of the main fundamentals for this incredible run is threatened: ultra-low interest rates.
Returns have risen and expectations for economic growth and related inflation have risen. Economists have improved their forecasts for this year as more people get COVID-19 vaccines, businesses reopen, and Congress gets closer to pumping another $ 1.9 trillion in financial aid into the economy.
The concern is that inflation could rise or something else could happen to push yields even higher.
It is the rate at which government bond yields have increased that has made Wall Street so uncomfortable, more than actual levels, which are still low compared to history.
Higher returns generally put pressure on stocks, in part because they can channel dollars that were heading for the stock market into bonds instead. That makes investors less willing than to pay high prices for stocks.
The pressures are greatest on stocks that look the most expensive relative to their earnings, as well as stocks that meet expectations of rapid growth well into the future. Critics say most stocks in the market look expensive after prices have risen much, much faster than earnings and warnings of a possible bubble have risen.
Tech stocks and other high-growth companies in particular were at the center of the downtrend. They rose more than the rest of the market during much of the pandemic and in the years before it. On Friday, Tesla was the heaviest weight on the S&P 500.
This is another reminder of how dominant big tech stocks have become in the marketplace. If inflation is ultimately controlled, as the chairman of the Federal Reserve and many economists expect, the general expectation on Wall Street is that most stocks could benefit from it.
A stronger economy would mean greater profits for companies that would allow their prices to stay stable or rise even if interest rates rise.
On Friday afternoon, the vast majority of the S&P 500 stocks rose, with power generators posting some of the biggest gains. Diamondback Energy was up 4.4% and Chevron 4.2% after US crude oil rose 3.5%.
Tech stocks would also likely see some improvement in earnings, just not as much as companies whose businesses are closely tied to the strength of the economy, such as banks or travel companies.
But big tech stocks have grown so large that their movements can mask developments in the broader market. Five big tech stocks alone make up more than 21% of the S&P 500 by market value, so weakness for tech can hold back S&P 500 index funds even if many stocks within the S&P 500 rise.
All of the major moves in the bond market have drawn the attention of the Federal Reserve, the chairman of which this week said he had noticed the recent surge in yields. He disappointed some investors when he didn’t offer anything stronger that could limit the rise. This in anticipation of the Fed’s next political meeting, a two-day session ending March 17, and whether Powell will offer further guidance on the Fed’s next move.
The AP business writer Elaine Kurtenbach contributed to this.