Investors saw a significant sell-off in stocks, bonds, bitcoin, and gold on Friday, following a robust jobs report that heightened the possibility of the Federal Reserve raising interest rates later this year. This development comes as Wall Street grapples with challenges in AI stocks.
Market Reactions
The S&P 500 fell by 1.8%, marking a downturn for the week and potentially ending a nine-week winning streak. The tech-heavy Nasdaq Composite experienced a 3% drop, its worst day since October, while the Dow decreased by 407 points, or 0.8%.
Volatility in the S&P 500 increased as investors took profits from recent stock surges and adjusted to changing expectations for Fed interest rates. The economy added 172,000 jobs in May, surpassing expectations, according to the Bureau of Labor Statistics. This job growth follows data indicating rising inflation due to the oil price spike from the ongoing conflict with Iran.
Impact on Interest Rates
The strong job gains could shift the Federal Reserve’s focus to controlling inflation, raising the likelihood of an interest-rate hike later this year. Traders now estimate a 43% chance of a rate hike in December, up from 26% a month ago, according to CME FedWatch.
James McCann, a senior economist at Edward Jones, noted that the data suggests Fed easing is unlikely this year, with markets concerned about a potential rate hike. Treasury yields, which rise when bond prices fall, increased, with the 10-year yield reaching 4.54%, influencing mortgage rates.
Sector-Specific Impacts
The Nasdaq’s decline continued for the third consecutive day, driven by a sell-off in semiconductor chip stocks. AI-related stocks, which had seen significant rallies in recent weeks, also pulled back, with a key exchange-traded fund tracking memory chip stocks dropping 12%.
Bitcoin fell over 3%, trading just above $61,000, near its lowest level since October 2024. The cryptocurrency has dropped more than 17% this week after Strategy, a key industry company, disclosed it sold some bitcoin for the first time since 2022. Gold prices also fell over 3%, as higher interest rates make non-income-generating assets like gold less appealing.
Outlook and Analysis
McCann emphasized that while the bar for rate hikes remains high, persistent inflation spikes could prompt the Fed to tighten monetary policy. New Fed Chair Kevin Warsh faces a challenging situation at his first meeting, given the complexities of current Fed policy and divisions within the FOMC rate-setting committee.
CNN’s Fear and Greed Index, a proxy for market sentiment, remained in “neutral,” having dipped from “greed” earlier in the week. The index had been in “greed” since mid-April, when the S&P 500 reached a record high during the conflict with Iran.
Oil prices decreased on Friday, with Brent crude futures falling 2.3% to $92.90 per barrel, and US crude futures dropping 3.4% to just below $90 per barrel. Despite the fall in oil prices, Treasury yields rose, indicating traders’ focus on strong jobs data and a stabilizing labor market, which could increase attention on inflation.
Nigel Green, CEO at DeVere Group, remarked that the jobs report provided a reason for policymakers not to cut rates, noting that while one report does not dictate policy, it can significantly alter market probabilities.
Original reporting: KEYT (Ventura/Santa Barbara) — read the source article.
