US stocks fall after surprisingly strong July jobs report reinforces Fed rate hike expectations

US stocks traded sharply lower Friday morning after a much stronger than expected reading on July employment reinforced expectations for the Federal Reserve to keep aggressively raising interest rates in its bid to rein in inflation.

What’s happening
  • The Dow Jones Industrial Average DJIA,
    fell 169 points, or 0.5%, to 32,558.

  • The S&P 500 SPX,
    was down 33 points, or 0.8%, at 4,119.

  • The Nasdaq Composite COMP,
    shed 142 points, or 1.1%, to trade at 12,579.

Stocks logged a mixed finish on Thursday, with the Dow losing 85.68 points, or 0.3%, while the S&P 500 edged down 0.1% and the Nasdaq Composite gained 0.4%.

Market drivers

The US economy added 528,000 jobs in July, the Labor Department reported, far exceeding the 258,000 consensus estimate. The unemployment rate ticked down to 3.5% from 3.6%, while average hourly earnings climbed 15 cents, or 0.5%, to $32.27.

Announcements of layoffs by a number of high profile companies had earlier raised concerns that a robust labor market may be softening.

“Friday’s extremely strong jobs data suggests that many businesses are not allowing recession fears to stand in the way of hiring,” said Ryan Belanger, managing principal and founder at Claro Advisors. “The jury is out on whether this robust pace of hiring can continue as many large and small companies have recently taken steps to slow hiring or even layoff existing employees.”

“We believe next Wednesday’s Consumer Price Index data will weigh more heavily on Federal Reserve policy than Friday’s jobs report, as fighting inflation is the Fed’s top focus,” Belanger said in emailed comments.

Fed-funds futures traders priced in a 69.5% chance of a 75 basis point rate hike in September, up from 34% on Thursday. Traders see a 30.5% probability of a 50 basis point move.

Meanwhile, geopolitical tensions remain an undercurrent for markets. China conducted “precision missile strikes” Thursday in waters off Taiwan’s coasts as part of military exercises that have raised tensions in the region to their highest level in decades following a visit by US House Speaker Nancy Pelosi to the island.

Five of the missiles fired by China landed in Japan’s Exclusive Economic Zone off Hateruma, an island far south of Japan’s main islands, Japanese Defense Minister Nobuo Kishi said. He said Japan protested the missile landings to China as “serious threats to Japan’s national security and the safety of the Japanese people.”

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Companies in focus
  • Tesla Inc.
    shareholders on Thursday approved a proposal expected to lead to a 3-for-1 stock split and sided with the company on most of the proposals up for a vote. Shares fell 2.2%.

  • Meme-stock favorite AMC Entertainment Holdings Inc.
    late Thursday announced a special dividend in the form of “Ape” preferred shares. AMC shares fell 9.6%.

  • Shares of Twilio Inc. TWLO fell 15.5% after the software company’s outlook came in below Wall Street expectations following a reported beat in the previous quarter.

  • DoorDash Inc.
    shares jumped 5% after the company late Thursday reported continued growth in the second quarter, saying that its food-delivery business remains healthy despite economic uncertainty, though its loss was worse than what Wall Street expected.

  • Shares of Cloudfare Inc.
    jumped 14.7% after the cybersecurity company reported results late Thursday that topped Wall Street expectations and hiked its revenue outlook for the year.

  • Beyond Meat Inc.
    shares fell 1.3% after the maker of plant-based meat substitutes Thursday afternoon posted a larger-than-expected net loss and smaller-than-expected revenues, while announcing layoffs.

  • Block Inc.
    shares fell 5.7% after the payment-technology company late Thursday swung to a loss and projected that July volume growth for the Square seller business would be lower than what was expected in the second quarter when looking on a year-over-year basis.

  • Carvana Co.
    shares jumped 7.9%, though the used-car retailer missed expectations with its second-quarter revenue and logged a larger loss than analysts were anticipating.

Other assets
  • The yield on the 10-year Treasury note TMUBMUSD10Y,
    jumped 15 basis points to 2.818%. Yields and debt prices move opposite each other.

  • The ICE US Dollar Index DXY,
    a measure of the currency against a basket of six major rivals, jumped 1%.

  • BitcoinBTCUSD,
    rose 1.5% to trade above $23,000.

  • The US oil benchmark CL.1,
    fell 1.5% to trade near $87 a barrel, while gold futures GC00,
    were off 1.2% near $1,785 an ounce.

  • The Stoxx Europe 600 SXXP,
    fell 0.8%, while London’s FTSE 100 UKX,
    was down 0.3%.

  • The Shanghai Composite SHCOMP,
    ended with a gain of 1.2%, while the Hang Seng Index HSI,
    in Hong Kong rose 0.1% and Japan’s Nikkei 225 NIK,
    gained 0.9%.

The Associated Press contributed to this report.

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