US equities retreat as May payrolls data fuels year-end rate hike bets
The S&P 500 and Nasdaq Composite slipped as 172,000 jobs added in May exceeded forecasts, tightening the labour market and raising inflation concerns.
US stock markets declined on Friday following the release of a May jobs report that significantly exceeded expectations, with 172,000 jobs added compared to forecasts of 88,000. The Dow Jones Industrial Average fell 0.7%, the S&P 500 slid 1.6%, and the Nasdaq Composite dropped over 2.5%. The strong labour data increased market expectations for a Federal Reserve interest rate hike by the end of the year, with traders fully pricing in a quarter-point increase. Technology and chip stocks led the sell-off, with Nvidia falling more than 4% and other major chipmakers declining by more than 8%. The unemployment rate remained steady at 4.3%.
The employment figures, released by the Bureau of Labor Statistics, revealed a concentration of gains in leisure and hospitality, which added 70,000 jobs, and local government, which added 55,000. Healthcare contributed 35,000 positions, while financial activities lost 22,000 jobs. Average hourly earnings grew at an annualised rate of 3.4%, down from 3.6% in the previous month. The data reinforced the view that the labour market is stabilising amid sticky inflation, with the Personal Consumption Expenditures index showing headline inflation rising at 3.8% annually.
Market reaction was immediate, with yields on 10-year Treasurys jumping by 5.5 basis points and 30-year Treasury yields rising by 4 basis points following the report. The shift in rate expectations comes as Kevin Warsh, President Trump’s appointee to chair the Fed, takes the helm. While traders are betting on a rate hike by the December meeting, odds of a hike at the October meeting stand at nearly 70%, creating a delicate political backdrop just weeks before the midterm elections.
The technology sector faced renewed pressure as Broadcom shares continued to decline, falling 4.6% in early trading after a 13% drop on Thursday. This followed a broader sell-off in the AI trade, with Nvidia falling more than 4% and major chipmakers such as Micron, AMD, and Intel declining by more than 8%. The S&P 500 is now at risk of snapping a historic 10th straight week of gains, which would be the longest such run since 1985.
Elsewhere in the market, Lululemon stock tumbled more than 10% in premarket trading after cutting its second quarter and full-year financial outlooks. In the commodities space, oil prices steadied after a decline, with Brent crude trading around $95 a barrel and West Texas Intermediate near $93, as optimism over US-Iran peace talks weighed against uncertainty regarding a ceasefire deal between Israel and Lebanon. Additionally, S&P Dow Jones Indices confirmed it will not shorten the 12-month seasoning period for newly public companies, rejecting proposals for faster entry for mega-cap firms like SpaceX.
