February 1, 2023

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Stocks drop after strong jobs data renews rate worries

2 min read

U.S. stocks slid Friday to close the week lower as investors weighed May jobs data that likely gave Fed policymakers a signal labor market conditions can weather a more aggressive rate hiking cycle.

Friday’s sell-off was led by tech stocks, with the Nasdaq Composite falling 2.5%. The S&P 500 fell 1.6%, while the Dow Jones Industrial Average shed 350 points, or 1%.

Treasury yields rose following Friday’s jobs data, with the yield on 10-year Treasury jumping as much as 7 basis points to just below 3%, before retreating to finish the week at 2.96%.

The Labor Department’s latest monthly employment report published Friday morning showed 390,000 jobs were added to the U.S. economy in May, with the unemployment rate holding steady at 3.6%. Economists had expected job gains to total 318,000 with the unemployment rate falling to 3.5%, per Bloomberg consensus data.

Although job growth slowed from April, the labor market remains tight, suggesting the Federal Reserve may proceed with tightening monetary conditions further by raising interest rates — a point of worry for investors who fear central bank policies may tip the economy into a recession.

“Overall, it seems like the job creation machine runs on full-steam and anecdotal evidence has it that hiring remains difficult for businesses of all sizes as demand outpaces supply,” Christian Scherrmann, DWS’ U.S. Economist said in a note.

“Looking ahead, the Fed is most likely to feel reassured that it has struck the right balance lately,” Scherrmann added. “That, in turn, means it is likely to stick to its aggressive monetary normalization path.”

Furthermore, Federal Reserve Bank of Cleveland President Loretta Mester indicated in an interview with CNBC Friday that she supports half point hikes at the next two policy-setting meetings in June and July, and more in autumn if prices don’t cool. Investors had previously hoped for a pause after the summer months.

“I’m going to come into the September meeting, if I don’t see…

2022-06-03 16:03:20

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