Stocks Fall Despite Strong Jobs Report As Investors Fear Bigger Fed Rate Hikes

The Dow Jones Industrial Average was down 0.3%, over 100 points, in early trading while the S&P 500 fell 0.6% and the tech-heavy Nasdaq Composite dropped 1.0%.

Stocks fell despite a strong non-farm payrolls report: The labor market added back 528,000 jobs in July—easily surpassing the 258,000 expected by analysts, according to the Bureau of Labor Statistics on Friday.

Unemployment ticked down to 3.5%, while wage growth continued to rise, up 0.5 percentage points from the previous month and over 5 points higher than a year ago, signaling that inflation pressures continue to remain.

With the labor market still running hot, investors now worry that the latest data means that the Federal Reserve will continue to aggressively raise interest rates in an effort to bring down high inflation.

Following the jobs report, traders are now pricing in another 75 basis point rate increase at the central bank’s next meeting in September, up from previous expectations of a 50 basis point increase, according to CME Group data.

“The knee-jerk reaction” in markets is clearly negative, as the market “picked up a head of steam” in recent weeks based on a view that the Fed was on the cusp of a monetary pivot, “but that clearly isn’t happening anytime soon based on this labor report,” says Vital Knowledge founder Adam Crisafulli.