Equities had a dour start to the year as traders clung to wagers that a March rate cut was still on the table after a slew of mixed jobs and U.S. service sector data.

The S&P 500 eked out a 0.2 per cent gain as Friday closed the stock market’s worst week since late October. The equities benchmark kicked off the new year by snapping its nine-week bull run. The Nasdaq 100 also squeezed out a small advance after five days of losses.

The downbeat tone of the shortened holiday week signals rough waters ahead for equities in the first half, according to Fundstrat Global Advisors LLC’s Tom Lee. The jobs data “adds to misery of early 2024,” he said.

“The first four trading days of 2024 have been a terrible start for equities,” Lee wrote in a note to clients. “The year tends to play out in January. Meaning, this turmoil in the first week of trading is telling us to brace for a challenging year.”

The strategist, who was one of the few to forecast last year’s bull run, still expects a rally in the latter half of the year. 

Richmond Fed President Thomas Barkin said Friday the labor market was moving in a steady, softening pattern. Earlier this week, he held off on giving a forecast on when the US central bank’s first rate cut would occur while advising: “So, buckle up. That’s the proper safety protocol even if you expect a soft landing.”

Stocks lost some of their steam after an early rebound on data that showed the US service sector slowed in December but remained above a key level that indicates expansion.

Treasuries resumed their slump in Friday’s choppy session, notching a weekly slide. The yield on the 10-year hit 4.04 per cent. U.S. bond rates were whipsawed after earlier data showed nonfarm payrolls rose by 216,000, a larger than expected gain and the unemployment rate held steady at 3.7 per cent in December. 

The jobs report initially cooled wagers on faster and deeper rate cuts from the Fed. But swaps traders eventually reformed bets on roughly 140 basis points of easing this year, with about a 70 per cent chance of a decrease in March. Some on Wall Street held onto faith in the central bank’s ability to cool the economy while side-stepping a downturn.

“Clearly, the economy is strong enough as of now to withstand the Fed’s currently elevated interest rates,” according to Jeremy Straub, chief executive officer of Coastal Wealth.

Treasury Secretary Janet Yellen was also optimistic the world’s economy was on the right path after declaring the U.S. had achieved a much-anticipated soft landing.

But many were skeptical about the prospect of deeper rate cuts after the payrolls report — noting the devil was in the details. The reports did little to change the views of economists at Goldman Sachs Group Inc. and JPMorgan as the banks reiterated their forecasts on rate cuts.

“This number does question the confidence of the market around the March cut,” said Lindsay Rosner a portfolio manager at Goldman Sachs Asset Management. “We’ve got three inflation prints between now and the March meeting. Every number counts.”

Investors will get a taste next Thursday. Consumer inflation for the year is projected to come in at 3.2 per cent, according to economists surveyed by Bloomberg. Investors will also be watching the financial sector next Friday as JPMorgan Chase & Co. and other big banks kick off earnings.

BMO Capital’s Ian Lyngen said the better-than-expected jobs report “affords the Fed plenty of flexibility to delay cutting rates early in 2024.”

Vital Knowledge’s Adam Crisafulli was even more circumspect: “Hourly wage growth ran hot and the participation rate sank, all of which suggests markets are far off the mark in terms of what they’re pricing in for 2024 Fed easing.”

Earlier, Citigroup Inc. strategists recommended buying global stocks at times of weakness and said don’t chase rallies as this year offers less upside than 2023.

In corporate news, Tesla Inc. is recalling more than 1.6 million cars in China over issues with the driver-assistance system.

Deal talks swirled Friday. Synopsys Inc. is in advanced talks to acquire engineering software provider Ansys Inc. for about $35 billion while Southwestern Energy Co. and Chesapeake Energy Corp. are near a $17 billion merger, according to reports.

In China, shadow banking giant Zhongzhi Enterprise Group Co. filed for bankruptcy. The downfall marks one of China’s biggest-ever corporate collapses, putting more stress on already fragile consumer and investor sentiment.

The dollar edged lower after being whipsawed by the December reports. Oil climbed, cementing a weekly gain, as simmering tensions in the Middle East and North Africa eclipsed signs of weakening U.S. demand.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.2 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 0.1 per cent
• The Dow Jones Industrial Average was little changed
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0939
• The British pound rose 0.3 per cent to $1.2720
• The Japanese yen was little changed at 144.76 per dollar

Cryptocurrencies

• Bitcoin fell 1.2 per cent to $43,960.51
• Ether fell 1.2 per cent to $2,248.57

Bonds

• The yield on 10-year Treasuries advanced five basis points to 4.05 per cent
• Germany’s 10-year yield advanced three basis points to 2.16 per cent
• Britain’s 10-year yield advanced six basis points to 3.79 per cent

Commodities

• West Texas Intermediate crude rose 2.4 per cent to $73.91 a barrel
• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation