Wall Street stocks ended slightly lower on Friday amid turbulence after strong U.S. jobs data confirmed the resilience of the economy but also raised concerns that the Federal Reserve may keep interest rates high longer than many investors had expected.
The U.S. Labor Department said it added about 272,000 jobs in May, well above analysts' forecasts of 185,000. The unemployment rate rose to 4%.
The S&P 500 (.SPX) fell sharply after the report, while Treasury yields rose as traders revised down their expectations for a rate cut in September. The index then rebounded and briefly hit a new intraday record as investors viewed the data as confirmation of a healthy economy.
Utilities (.SPLRCU), materials (.SPLRCM) and communications (.SPLRCL) were the biggest losers. Financials (.SPSY) and technology (.SPLRCT) were the best performers.
For the week, the S&P 500 rose 1.32%, the Nasdaq gained 2.38% and the Dow Jones gained 0.29%.
"This shows that a rate cut is not coming anytime soon. Rising bond yields are putting significant pressure on risk assets, including small-caps," said Sandy Villere, a portfolio manager at Villere & Co in New Orleans.
"It's all about interest rates. They may stay higher longer than expected, and investors will have to adjust to the new environment," he added.
Markets reacted to the employment data by changing expectations for the timing of the Fed's rate cut. After the data was released, traders speculated that the Fed's rate cut from the current level of 5.25% to 5.5% may not begin until November. According to Fedwatch LSEG, the probability of the Fed cutting rates by 25 basis points in September has fallen to 56% from about 70% the day before.
The Dow Jones Industrial Average (.DJI) fell 87.18 points, or 0.22%, to 38,798.99, the S&P 500 (.SPX) lost 5.97 points, or 0.11%, to 5,346.99, and the Nasdaq Composite (.IXIC) fell 39.99 points, or 0.23%, to 17,133.13.
GameStop (GME.N) shares fell 39% in volatile trading that coincided with popular blogger Roaring Kitty's first livestream in three years. The company announced a possible stock offering and a cut in quarterly sales.
Other names popular with retail investors, such as AMC Entertainment (AMC.N) and Koss Corp (KOSS.O), also suffered significant losses, falling 15.1% and 17.4%, respectively.
Nvidia (NVDA.O) shares extended their losses from the previous session, pushing their market cap back below the $3 trillion mark.
Lyft (LYFT.O) shares rose 0.6% after the company forecast 15% growth in total bookings by 2027, announced after the close of trading on Thursday.
Declining stocks outnumbered advancing stocks on the New York Stock Exchange (NYSE) by a 2.72-to-1 ratio. On the Nasdaq, 1,177 stocks advanced and 3,064 declined, giving decliners a 2.6-to-1 ratio.
The S&P 500 posted 17 new 52-week highs and five new lows, while the Nasdaq Composite posted 34 new highs and 149 new lows. Total volume of shares traded on U.S. exchanges was about 10.75 billion, compared with an average of 12.7 billion over the past 20 trading days.
Lower expectations for quick Fed action weighed on stocks, which ended lower. The MSCI World Share Index (.MIWO00000PUS) was down 0.3% after hitting a record high of 797.48.
The yield on two-year notes, a proxy for interest rate expectations, rose nearly 17 basis points to 4.8868% after six straight days of declines. The rise in yields comes as bond prices have fallen.
Rate changes had been expected in September, especially after the European Central Bank cut its deposit rate to 3.75% from a record 4% on Thursday, in line with expectations.
The Bank of Canada on Wednesday became the first G7 bank to cut its key rate, following Sweden's Riksbank and the Swiss National Bank.
The employment report also changed the dynamics of eurozone rate expectations, with traders now forecasting a 55 basis point cut this year, up from 58 bps before the data.
The European Stoxx 600 (.STOXX), which has gained almost 10% since the start of the year, fell 0.2%.
The euro zone bond market also showed weakness, with German 10-year yields up 8 basis points to 2.618%.
In currency markets, the U.S. dollar rose 0.8% against a basket of major currencies, reversing a week of losses ahead of the employment data. The euro fell 0.8% to $1.0802 after a small gain the previous day.
Brent crude futures fell 0.6% to $79.36 a barrel. The stronger dollar weighed on spot gold, which fell 3.6% to $2,290.59 an ounce.
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