US stocks dropped on Friday as investors digested the May jobs report, which showed a much stronger-than-expected payroll figure. The report, which revealed that 272,000 jobs were added to the economy last month, pushed out expectations of a Fed interest-rate cut later this year.
The strong payroll report also saw the unemployment rate rise to 4.0% from 3.9%, indicating some weakness in the labor market despite the robust job growth. Additionally, average hourly earnings rose to 4.1% annually, raising concerns about inflation and leading to a shift in expectations for a rate cut.
According to Seema Shah, Principal Asset’s chief global strategist, “Today’s data undermines the message that other recent economic data have been giving of a cooling U.S. economy, and slams the door shut on a July rate cut.” While a rate cut is still expected in September, another strong jobs report could change that outlook.
Despite the drop on Friday, US stocks finished the week higher by more than 1%. The CME FedWatch Tool now shows a 47% chance of an interest rate cut in September, down from 55% before the release of the jobs report.
Overall, the May jobs report has reshaped expectations for the US economy and the Federal Reserve’s monetary policy, leading to a mixed reaction in the stock market and other financial markets.
