Market Recap | U.S. stocks close lower after jobs report

 Markets are off to a rough start in 2022.

The $S&P 500 index(.SPX.US)$ ended the week with a loss of 1.9%, while the $Dow Jones Industrial Average(.DJI.US)$ has lost 0.3%. The tech-heavy $Nasdaq Composite Index(.IXIC.US)$ fell 4.5%, its worst week since February. And the turbulence hasn't been limited to the stock market: The yield on the 10-year Treasury note jumped for five consecutive sessions to its highest level since January 2020, before the pandemic started spreading aggressively through the U.S.

The week has been marked by big swings across stock and bond markets as investors have fled some of the most popular trades of the past year and parsed signals from the Federal Reserve on the path of rate hikes. As bond prices have fallen and Treasury yields have jumped, investors have ditched shares of technology and growth companies, particularly some of the most speculative bets in those sectors.

The S&P 500 kicked off the new year with a fresh record on Monday but came under renewed pressure after the Federal Reserve's minutes confirmed its intention to pull back stimulus and suggested it might do so sooner and faster than previously planned, due to high inflation. The broad stock-market gauge and other major indexes finished the week with their worst performance in the first five trading days of a year since 2016.

On Friday, the December jobs report was the latest of several confusing signals about the economic recovery that investors are evaluating.

Markets are a bit spooked here from the minutes and maybe a bit of what they're seeing in the labor market." 

- said Mona Mahajan, senior investment strategist at Edward Jones.

The jobs report showed that the U.S. added 199,000 jobs in December, below the 422,000 expected by economists surveyed by The Wall Street Journal. Still, 2021 concluded with the U.S. adding a record number of jobs. The jobless rate fell to 3.9%.

Analysts have struggled to estimate job gains during the pandemic and the government is getting less data from employers. Investors are also contending with a factor they mostly ignored for the past decade: inflation. The latest jobs report showed that average hourly wages increased 4.7% in December from a year earlier, well above wage growth of roughly 3% before the pandemic and adding to historically high inflation figures that have unnerved investors.

Adding to uncertainty, some investors said that they were expecting the Omicron variant to potentially hamper job gains in coming months.

The S&P 500 slipped for the fourth consecutive session, losing 19.02 points, or 0.4%, to 4677.03 Friday. The Nasdaq Composite Index shed 144.96 points, or around 1%, to 14935.90. The Dow Jones Industrial Average dropped 4.81 points, or less than 0.1%, to 36231.66.

The minutes from the Federal Reserve, released Wednesday, helped stoke selling in government bonds that continued after the monthly jobs report. Investors have priced in the possibility of earlier interest rate increases and the Fed shrinking its bond portfolio in the near future. The yield on the benchmark 10-year Treasury note settled at 1.769%, concluding its biggest three-week yield gain since 2019.

Everything happening in markets this week was about expectations on how fast the Fed is going to tighten policy. This is a transition year where we go from record policy support toward actual tightening. There will be huge volatility as we figure out how to work in this paradigm."

- said Fahad Kamal, chief investment officer at Kleinwort Hambros.

As investors have fled tech stocks, many have piled into cyclical corners of the market like energy and financials companies. Those groups have outperformed this week, notching gains as the broader market has declined. The S&P 500's energy group gained nearly 11% this week, while the financials sector added 5.4%.

Shares of tech heavyweights, which have been sensitive to interest rate expectations, tumbled this week. $Alphabet-A(GOOGL.US)$ shares were down around 5.4%, while Netflix$Netflix(NFLX.US)$ dropped roughly 10%. Shares of Cathie Wood's flagship $ARK Innovation ETF(ARKK.US)$ were down almost 11%.

Underneath the surface, the selling has been even more extreme. Nearly 40% of the stocks in the Nasdaq Composite are down 50% from their 52-week highs, while almost two-thirds are in bear markets, or down 20%, according to Sundial Capital Research. This highlights how volatile individual stocks have been as investors have positioned for the next phase of the economic recovery.

In corporate news, meme stock $GameStop(GME.US)$ stock rose 7.3% -- paring even bigger gains from earlier in the session -- after The Wall Street Journal reported the company was planning to enter the cryptocurrency and nonfungible token markets.

Oil prices rose this week. Global benchmark Brent crude gained 5.1% to $81.75, finishing a third consecutive week of gains. Oil supply could potentially be lower due to cold weather in North Dakota and Alberta, Canada, and if protests in crude producer Kazakhstan affect output, according to analysts at ING.

Overseas, the pan-continental Stoxx Europe 600 ticked down 0.4%.

In Asia, major stock benchmarks were mixed. The Shanghai Composite Index fell 0.2%, while Hong Kong's Hang Seng Index rose 1.8%, led by gains in technology stocks. South Korea's Kospi Index rose 1.2%.

-- Sam Goldfarb contributed to this article.

Write to Gunjan Banerji at gunjan.banerji@wsj.com and Anna Hirtenstein at anna.hirtenstein@wsj.com

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