Why stocks just capped off their worst week since Liberation Day after a stellar jobs report

• US stocks fall as Friday’s losses drag Nasdaq 100 to its worst week since April 2025

• While a strong jobs report would be positive for the economy, it dashed hopes for a rate cut for this year.

• Investors now see a 70% chance that the Fed will raise interest rates this year.

This is good news, bad news for markets on Friday, as stocks fell sharply following a major economic update.

It was another amazing month for us. US job marketBut that’s not what investors actually wanted to hear. U.S. employers added 172,000 new jobs in May, far more than 88,000 economists expected. The unemployment rate remained unchanged at 4.3 percent.

This is a positive signal for the US economy; It shows that employers are not yet deterred. hotter inflation and ongoing uncertainty regarding the US-Iran war.

But for markets, an extremely hot jobs report has come to mean only one thing: interest rate cuts.

Stocks fell as investors abandoned fast-growing stocks in technology and artificial intelligence. The Nasdaq 100 fell almost 5%, posting its worst single-day loss since October last year and its worst weekly loss since Independence Day. The S&P 500 is on a nine-week upward streak, its longest streak since 2023.

Here’s where U.S. indices stand at the close at 4 p.m. ET:

Louis Navellier, CIO of Navellier & Associates, wrote in a note that investors expect to make profits, especially in the semiconductor sector.

“Stock markets have paused after a historic rally and are heading for their first losing week in 10 years,” Nationwide chief market strategist Mark Hackett said in a note Friday. “As market indices calm down, it is important to look below the surface for signs of investors’ risk tolerance,” he added, pointing to the momentum in the chips sector in recent months.

The logic works like this: Investors have been waiting for a lower price for months interest ratesSomething that is expected to increase the price of risky assets such as stocks. But two things stand in the way of the Fed easing monetary policy: high inflation and a strong labor market.

On the inflation side, markets already knew that the central bank had less room to cut interest rates than before the start of the US-Iran war. Inflation It reached its highest pace in nearly three years in April, largely due to the recent increase in energy prices.

But now hiring seems to have tipped in favor of interest rate cuts. If the job market were struggling, there might be a stronger case for the Fed to cut interest rates to boost economic growth.

Investors bounced back quickly possibility of interest rate reduction and increase the likelihood of a raise.

According to the CME FedWatch tool, the probability of the Fed cutting interest rates by the end of the year has dropped to 1.1%. This means there is a 70.7% chance of a rate hike, which is considered the worst-case scenario for stocks.

US Treasury yieldsAnother reflection of interest rate expectations on the economy has also increased.

10-year US Treasury The yield rose to 4.54%, above the 4.5% psychological threshold that indicates investors will see higher interest rates for longer, which could weigh on stocks.

20 years and 30-year US Treasury bond yields It also rose even higher, to over 5%.

“Any hope of a Fed rate cut has been effectively eliminated by this morning’s strong jobs report,” Ron Temple, Lazard’s chief market strategist, wrote in a note. “I still see a rate hike as unlikely, but easing has been ruled out as headline CPI inflation is likely to exceed 4% next week,” he added for the upcoming May inflation report.

Bank of America also pointed out the possibility of a “hawkish shift by the Fed” in a note published after the employment report.

Northlight Asset Management CIO Chris Zaccarelli said rate hikes are not a done deal in markets yet, but rate cuts for 2026 are likely off the table.

“The Fed won’t be able to cut rates with inflation this high, but if it remains under control – especially due to disruptions in the Strait of Hormuz – then they won’t feel pressure to raise rates either,” Zaccarelli wrote in a note on Friday.

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