The S&P 500 fell 0.4% Friday as a stronger-than-expected August jobs report pushed Treasury yields higher and lifted the odds of a Federal Reserve rate hike this month. The 2-year yield climbed to its highest level since January 2025, while traders raised the probability of a September increase to 58%.
The S&P 500 dropped 0.4% in early afternoon trading Friday. The Dow Jones Industrial Average fell 0.5%. The Nasdaq composite slipped 0.4% as well. The small-cap Russell 2000 bucked the trend, edging 0.1% higher. Behind the pullback: a jobs report that came in far hotter than forecast.
Treasury yields jump on hot jobs data
The Labor Department said nonfarm payrolls jumped by 162,000 in August, well above the 53,000 economists had forecast. The shorter-dated 2-year Treasury yield, which tracks Fed rate expectations closely, rose more than 3 basis points to 4.372%, its highest level since January 2025. The benchmark 10-year yield added more than a basis point to 4.774%, while the 30-year yield was little changed at 5.238%.
A hot labor market, combined with inflation still running above the Fed's target, gives the central bank more room to raise rates. Chris Rupkey, chief economist at FWDBONDS, said: "today's stellar jobs report shows hiring is surprisingly robust", according to CNBC.
Rate-hike odds climb ahead of the Fed meeting
Traders lifted their bets on a quarter-point rate hike at the Fed's Sept. 15-16 meeting to 58%, up roughly 9 percentage points from a day earlier, according to the CME Group's FedWatch tool. Vice President JD Vance had called on the Fed to cut rates on Thursday to ease housing costs.
Investors next turn to August's consumer price index, due Sept. 11, just days before the Fed decision. Economists expect headline prices rose 0.1% for the month and 3.4% annually. The core reading is seen up 0.2% for the month and 2.5% for the year.
Sources: Investor's Business Daily, CNBC
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