S&P500· Nasdaq fall on strong employment data, expectations for rate hikes rise

Employment improved more strongly than expected in the latest U.S. employment report. As a result, the S&P 500and Nasdaq indexes fell during the session. Treasury yields rose, while futures markets showed that the probability of further Fed rate hikes was being revised upward.

The employment report includes labor-market indicators such as nonfarm payrolls and the unemployment rate. This release suggested that the labor market remains solid. Investors viewed the result as a signal for gauging the direction of interest rates.

Different interpretations emerged among market participants. Some saw strong employment as increasing pressure on the Fed to raise interest rates in the short term. Others pointed out that strength in employment and wages could create a case for rate cuts in the future, depending on the course of the economy.

The stock market decline and rising bond yields dealt a greater blow to technology and growth stocks. Bank stocks also showed relative strength amid the rising-rate environment. Trading volume and volatility increased from usual levels that day.

This report became an important input ahead of the next Federal Reserve public meeting, the dot plot, and changes in upcoming employment data. The market is watching the Federal Reserve remarks to be released and the next monthly employment report. In the short term, changes in rate expectations were immediately reflected in asset prices.

Immediately after the announcement, investors showed signs of partially readjusting their positions. Changes in interest-rate-sensitive positions were also observed in options and futures positions. The next major events are expected to include the Federal Reserve’s next public meeting and the next monthly employment report.