U.S. stock futures extend declines after higher-than-expected labor market data

© Reuters

By Scott Kanowsky

Investing.com -- U.S. stock futures fell on Friday, extending earlier declines, as investors examined a U.S. labor market report that remained surprisingly strong despite ongoing efforts by the Federal Reserve to tamp down demand.

At 09:12 ET (14:12 GMT), S&P 500 futures traded 50 points or 1.20% lower, and tech-heavy Nasdaq 100 futures shed 249 points or 1.94%. The Dow futures contract also dropped by 214 points or 0.63%.

The Labor Department said nonfarm payrolls grew by 517,000 through the middle of January, abruptly snapping a four-month trend of slowing job gains. Analysts had expected a further slowdown to 185,000, which would have been the slowest job growth in nearly two years.

December's payroll data were also revised up by 37,000 and November's by 34,000, reinforcing the unexpected nature of the January numbers. As such, the figures provided further evidence that a labor market that overheated as the pandemic eased is still only slowly losing steam, despite a succession of big interest rate hikes by the Federal Reserve.

"The idea that [the] Fed cycle is ending sooner than ECB or BOE may be in question," said Kathy Jones, chief fixed-income strategist with Charles Schwab. Fed chair Jerome Powell had raised hopes of a 'pivot' later this year at a press conference on Wednesday when he argued that a "disinflationary trend" had already begun.

Analysts said the details of the report raised the likelihood that the Fed can achieve a 'soft landing' for the economy, rather than the recession that many fear. Average weekly hours worked rose to 34.7, the highest in 10 months, amid anecdotal evidence of people taking more side jobs to claw back with extra earnings the spending power that they lost to inflation last year.

Traders were also eyeing Apple (NASDAQ:AAPL), Amazon.com (NASDAQ:AMZN), and Google-parent Alphabet (NASDAQ:GOOGL), with shares in all three dipping following the release of their latest earnings.

Apple posted fiscal first quarter results that missed analyst expectations, pressured by weaker iPhone sales and production issues in China, while earnings and revenue for the fourth quarter at Alphabet were also hit by slowing online ad spending. Meanwhile, Amazon beat revenue expectations for the fourth quarter but top-line performance from its key cloud business was slightly below estimates.

"All in all, the initial market reaction to last night’s numbers looks disappointing and could lead to some read across in some chip makers, and other related suppliers to the sector," said Michael Hewson, chief market analyst at CMC Markets U.K.

"But we should also remember all three companies have seen big gains in their share prices so far this year, so perhaps it’s time for a bit of a pause as we head into the weekend."

In other corporate news, shares in Nordstrom (NYSE:JWN) soared by more than 30% after the Wall Street Journal reported that activist investor Ryan Cohen is building a large stake in high-end retailer Nordstrom. Citing people familiar with the matter, the paper said Cohen - famous for his bets on meme stocks like GameStop Corp. (NYSE:GME) - is aiming to enact changes to the company's board and slash costs.