The stock market moved lower on Friday and government bond yields surged after the U.S. economy added a more-than-expected 390,000 jobs in May, with the strong labor market signaling to investors that the Federal Reserve will continue with its path of aggressively tightening monetary policy.
The Dow Jones Industrial Average fell 0.5%, almost 200 points, while the S&P 500 lost nearly 1% and the tech-heavy Nasdaq Composite 1.2%.
The U.S. economy added 390,000 jobs in May—higher than the roughly 328,000 new jobs economists were expecting but falling short of the 436,000 jobs added in April, according to new data from the Labor Department on Friday.
Experts now warn that the strong job numbers will “likely reverse any hopes the Fed would consider a pause in rate hikes after the June/July increases,” according to Tom Essaye, founder of the Sevens Report.
“The labor market is tight and job growth is stable,” says Jeffrey Roach, chief economist for LPL Financial, who adds that this will make it possible for the Federal Reserve to “continue to tighten financial conditions and remove the historic level of accommodation in the markets.”
Government bond yields surged widely after the jobs data, weighing on stocks as investors remain concerned about rising rates leading to an economic slowdown: The closely watched 10-year Treasury note jumped to 2.97% on Friday.
Technology shares were particularly hard-hit by the rising rates and dragged markets lower, while recently rebounding consumer stocks were also among one of the worst-performing sectors on Friday.
Shares of electric-vehicle maker Tesla, meanwhile, fell over 5% after reports that billionaire CEO Elon Musk is looking to cut roughly 10% of jobs at the company. Musk called for a pause on global hiring with layoffs likely needed as he has a “super bad feeling” about the economy, Reuters first reported.
Stocks are reacting “negatively” to the report and volatility will likely continue as investors look for appropriate multiples on earnings growth, says John Lynch, chief investment officer for Comerica Wealth Management. Despite the uncertainty, “full employment in the U.S. is a solid buffer against the risk of slowing global [economic] growth.”
Amid the declines on Friday, stocks are now slightly lower for the week. Markets have struggled for direction recently: Stocks snapped a seven-week losing streak last Friday, posting their strongest weekly return since November 2020 as recession fears cooled somewhat. Volatility has surged once again, however, as investors remain fearful that rising rates and surging inflation could well lead to a slowdown in economic growth. After raising interest rates by a half-percentage point in early May, the Federal Reserve is currently on track to raise rates again by 0.50% at each of the upcoming policy meetings in June and July.