Wall Street spent the week trying to read the Federal Reserve's next move, and Friday's jobs report scrambled the picture just as investors thought they had it figured out.
On Thursday, stocks rallied strongly, with the Dow Jones Industrial Average climbing about 1.2 percent, the S&P 500 gaining roughly 1 percent, and the Nasdaq Composite surging about 1.4 percent, in what was the Dow and S&P's best day in about a month. The rally followed comments from Federal Reserve Governor Christopher Waller, who indicated he would be willing to support holding interest rates steady at the Fed's upcoming meeting if inflation pressures continued to ease. Bond yields fell, the dollar weakened, and both bitcoin and gold jumped as investors leaned into riskier assets.
That mood reversed within a day. Friday's stronger than expected August jobs report, showing 162,000 new jobs against forecasts of roughly 53,000, pushed Treasury yields higher, with the two-year yield touching its highest level since January 2025. The Dow fell 271.86 points, or 0.51 percent, to close at 53,414.25. The S&P 500 slid 0.38 percent to 7,718.60, and the Nasdaq Composite dropped 0.29 percent to 26,506.99, while the small-cap Russell 2000 fell about 1.4 percent, a sharper decline that reflects how smaller companies are seen as more exposed to higher borrowing costs.
Bill Adams, chief U.S. economist at Fifth Third Commercial Bank, said the report was much better than expected and would focus the Fed squarely on controlling inflation when it meets later this month. Market pricing for a September rate hike moved to roughly 50 percent, up from lower odds earlier in the week, according to trader commentary cited in market coverage. The Fed's rate-setting committee is scheduled to meet September 16 and 17, and officials will have one more significant data point to weigh before then: inflation readings due out in the coming week.
Next week's consumer and producer price inflation reports are widely seen as the tiebreaker that will determine whether the Fed raises rates, holds steady, or waits for more clarity at its September 16 to 17 meeting.
Why did strong jobs data hurt stocks?
A much stronger than expected labor market gives the Federal Reserve more room to raise interest rates to fight inflation, and higher rates typically weigh on stock valuations.
When does the Fed meet next?
The Federal Reserve's rate-setting committee is scheduled to meet September 16 and 17, 2026.