Stocks and Bonds Move on Weak August Jobs Report as Markets Price In Fed Cut
Disappointing hiring data sent Treasury yields lower and raised odds of a Federal Reserve rate cut, prompting a mixed session that saw early record highs give way to modest losses.
U.S. financial markets moved decisively after a Labor Department report showed employers hired far fewer workers in August than economists expected, a development that pushed Treasury yields sharply lower and increased bets that the Federal Reserve will cut interest rates next month.
The weak payrolls reading, together with downward revisions that showed June and July hiring had been overstated by about 21,000 jobs, fueled a surge in demand for Treasuries and left traders pricing a near-certain chance of a Fed rate cut at the Sept. 17 meeting, according to CME Group data. Early trading saw the S&P 500 climb and extend its all-time high set the previous day, but gains did not hold through the close.
At the end of the day Friday, the S&P 500 fell 20.58 points, or 0.3%, to 6,481.50. The Dow Jones Industrial Average lost 220.43 points, or 0.5%, to close at 45,400.86, while the Nasdaq composite slipped 7.31 points, essentially flat at 21,700.39. The Russell 2000 index of smaller companies rose 11.43 points, or 0.5%, to 2,391.05.
Bond markets reacted more sharply than stocks. Treasury yields tumbled after the employment shortfall and the revisions to prior months’ data, reflecting increased investor confidence that the Fed will move to lower its benchmark rate. Traders have rapidly shifted expectations in recent weeks after a series of softer-than-expected economic reports.
Policymakers at the Federal Reserve have held their main interest rate steady so far this year, citing concerns about inflation and the need to assess incoming data. A reduction in the policy rate can provide stimulus to the economy and labor market, but the Fed has so far refrained from cutting as it balances growth and price stability.
The latest Labor Department release follows last month’s weaker-than-expected update and a string of other lackluster readings that have altered market perceptions of the timing and certainty of monetary easing. Market participants will be watching incoming economic releases and Fed communications closely in the run-up to the central bank’s September meeting.
Trading volume and investor sentiment can shift quickly in response to fresh data and Fed commentary. For now, the combination of softer hiring figures and revised payrolls has created renewed expectations of monetary easing, even as equities finished the week mixed after an intraday push to new highs.