Employment data could affect the size and pace of Federal Reserve interest-rate increases ahead

U.S. stocks edged lower Friday after a surprisingly strong jobs report cast doubt on the Federal Reserve being able to shift away from interest-rate increases anytime soon. 

The S&P 500 dropped 0.45%. The Dow Jones Industrial Average was down 9 points, less than 0.1%, and the Nasdaq Composite declined 0.8%.

Investors had come to widely believe that the Fed could pivot to cutting interest rates as early as the first half of 2023, given signs of cooling activity across the economy. That would have been a balm for markets, which have tumbled this year as the Fed has swiftly raised interest rates to combat stubbornly high inflation

But Friday’s data showed the labor market was doing anything but cooling. The labor market added 528,000 jobs in July—more than doubling what analysts had estimated and returning payrolls to their prepandemic level. Meanwhile, the unemployment rate fell to 3.5%, near historic lows.

That left investors with a mixed picture: A key pillar of the economy remains strong, which should be good news for markets. But the strong data means the rate increases that have sent stock and bond prices lower this year aren’t likely to go away anytime soon. 

Bond prices fell, with the yield on the benchmark 10-year Treasury note jumping to 2.837% from 2.674% Thursday. Yields and prices move inversely. 

“Today’s jobs report is the exact opposite of a slowing economy,” said Thomas Tzitzouris, head of fixed-income research at Strategas. “This report means it’s going to be very difficult to support the view of rate cuts happening anytime before the end of next year.” 

Shares of AMC Entertainment rose 13% after the cinema chain said revenue quintupled in the recent quarter and that it would issue a special dividend in the form of preferred shares. 

Virgin Galactic shares fell 16% after the company delayed its initial launch of tourists into space. 

Warner Bros. Discovery shares declined 16% after the new company swung to a $3.42 billion loss in the second quarter, which it said was partly due to charges related to the recent merger that created the media giant.

Zillow Group’s shares fell 3.5% after the online real-estate company issued a third-quarter outlook reflecting the slowing demand in the housing market from higher home prices, mortgage rates and inflation.

Overseas, the pan-continental Stoxx Europe 600 fell 0.8%. 

In Asia, major indexes closed with gains. Japan’s Nikkei 225 added 0.9%, South Korea’s Kospi rose 0.7% and China’s Shanghai Composite gained 1.2%.

Photo by Saulo Mohana on Unsplash

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