US stocks ended lower on Friday after stronger-than-expected August employment data increased expectations that the Federal Reserve could raise interest rates at its September meeting.
The Dow Jones Industrial Average fell 0.5% or 279.20 points, while the S&P 500 declined 0.38% and the Nasdaq Composite lost 0.3%.
The selling came ahead of the three-day Labor Day weekend as investors reassessed the outlook for monetary policy following the latest labor market data.
The August jobs report showed that nonfarm payrolls increased by 162,000, nearly three times the consensus estimate of 56,000 cited by Reuters.
The unemployment rate remained at 4.1%, while employment figures for June and July were revised higher by a combined 55,000 jobs.
Strong jobs data raises Fed hike expectations
The stronger employment figures increased expectations that the Federal Reserve could raise interest rates at its Sept. 15-16 meeting.
According to the CME FedWatch tool, markets were pricing in a 58.4% probability of a 25-basis-point rate increase, up from 49.4% on Thursday.
Treasury yields also moved higher following the jobs report, with the two-year Treasury yield reaching its highest level since January 2025.
The stronger labor market data has complicated the Fed’s policy outlook.
While resilient employment supports economic activity, it could also make it more difficult for policymakers to ease inflationary pressures, particularly as energy prices remain elevated amid the US-Iran conflict.
Attention now turns to upcoming inflation data, including consumer and producer price reports, which could provide additional guidance on the Fed’s next policy decision.
The latest move also followed a weaker session in the bond market earlier in the week.
On Thursday, the major US indexes gained after Federal Reserve Governor Christopher Waller indicated support for keeping rates within the current 3.5%-3.75% target range at the September meeting.
Adobe, Lululemon falls
Despite Friday’s losses, the three major indexes posted mixed weekly performances. The Dow had a 0.3% weekly decline, while the S&P 500 was broadly flat and the Nasdaq posted a 0.3% gain.
Sector performance was mixed. Semiconductor stocks outperformed on Friday, although the sector remained down about 18% for the quarter. Software and services stocks lagged after gaining about 25% over the same period.
Individual stocks also contributed to the market’s decline.
Lululemon Athletica dropped after cutting its full-year revenue and profit forecasts. Adobe fell following the announcement that longtime CEO Shantanu Narayen would be succeeded by company insider Anil Chakravarthy.
Credit firms slide as housing policy changes
Credit reporting companies also declined after Federal Housing Finance Agency Director Bill Pulte said he had directed Fannie Mae and Freddie Mac to approve all lenders to use VantageScore’s credit scoring system.
Shares of Fair Isaac, TransUnion and Equifax all closed sharply lower following the announcement.
The broader market remains focused on how incoming economic data could influence the Federal Reserve’s policy path.
The latest employment report provided evidence that the labor market remains resilient despite a slowdown in hiring momentum earlier in the summer.
For investors, the combination of stronger employment, higher Treasury yields and shifting rate expectations has increased the importance of next week’s inflation readings.
US markets will be closed Monday for the Labor Day holiday, with trading resuming afterward as investors continue to assess the outlook for interest rates and the economy.