Stock Market Today: Dow Drops, Tesla Slips, Okta Jumps

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The stock market was dropping Friday, after the U.S. economy added more jobs than expected in May. Markets are still nervous that the Federal Reserve will lift interest rates fairly quickly.

Shortly after the open, the Dow Jones Industrial Average fell 215 points, or 0.7%, while the S&P 500 was down 1%, and the Nasdaq Composite declined 1.6%.

The U.S. added 390,000 jobs for the month of May, above expectations for 328,000. The March and April jobs results were revised down by a net 22,000. The unemployment rate remained at 3.6%.

Wages rose 0.3% month over month, below the expected gain of 0.4%. The year-over-year gain in wages was 5.2%, down from 5.5% in the prior jobs report.

More jobs added and higher wages are signs of a strong economy, but the concern is that inflation will remain close to its recent peak. More hiring means more people are earning incomes, keeping prices elevated. Rising wages also indicate that companies will continue to raise prices at a fast clip to protect their profit margins. Declining inflation had become evident in May, which pushed along the narrative that the Federal Reserve could slow down the pace of rate hikes.

The good news is that wage gains were lower than expected. “This is consistent with the peak inflation narrative; at least for the time being,” wrote Ian Lyngen, head of U.S. rates strategy at BMO. 

Others agree, yet there’s a caveat. “The deceleration in wage growth is encouraging because it suggests that the broader cyclical price pressures in the economy are close to peaking,” wrote Michael Pearce, senior U.S. economist at Capital Economics. “But it will take a slowdown in annual wage growth to closer to 4% before the Fed can claim it is making significant progress towards its inflation goal.”

The bond market certainly sees a slightly higher likelihood that the Fed will keep raising rates at a brisk pace. The 2-year Treasury yield, which attempts to forecast the level of the federal funds rate a couple years from the present, rose to as high as 2.66% from a 2.63% close Thursday, as investors sell the bond. The 10-year yield rose to 2.98% from 2.92% just before the jobs report.

Those rates had fallen from their recent peaks, but are now moving back in the direction of their highs. “There is some repositioning here by those that got long ahead of it because it [jobs report] just reinforces the aggressive Fed response,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group. 

The same might be true for stock investors that had gotten too optimistic. The S&P 500 had gained almost 10% from its intraday low for the year hit on May 20 to Thursday’s close. That gain was partly predicated on the narrative that called for declining inflation and a less aggressive Fed. The May jobs report doesn’t seem to validate that thesis.

Also weighing on stocks before the release of the jobs data was a report that said

Tesla

(ticker: TSLA) Chief Executive Elon Musk wanted to cut 10% of staff at the electric-vehicle maker, making it just the latest tech company looking to pare its workforce. Tesla stock fell 4.4%.

Here are some stocks on the move Friday:

Lululemon Athletica

(LULU) rose 0.1% after the company delivered an upbeat fiscal first-quarter report and full-year earnings forecast.

Okta

(OKTA) jumped 13%. The identity-management software company posted better-than-expected fiscal first-quarter results and raised its forecast for the year.

RH

(RH) rose 2% after the home furnishings retailer issued a weak full-year outlook but posted strong quarterly earnings.

Shares of security software provider

CrowdStrike

(CRWD) fell 7.4% even after the company posted better-than-expected quarterly adjusted earnings and boosted its full-year outlook.

Turning Point Therapeutics

(TPTX) stock more than doubled after an announcement that

Bristol Myers Squibb

(BMY) will buy the company for $4.1 billion. The company’s market cap before it was announced that it will be acquired was just over $1 billion.

Write to Joe Woelfel at joseph.woelfel@barrons.com and Jacob Sonenshine at jacob.sonenshine@barrons.com