U.S. stocks slumped after a spate of jobs reports tamped down speculation the Federal Reserve would leave interest rates unchanged later this month.

The S&P 500 fell 1.2 per cent over the shortened holiday week while the Nasdaq 100 slid 0.9 per cent. Yield on the two-year Treasury drifted down to 4.94 per cent on Friday as investors digested government jobs data that fell short of estimates but brought signs that wage inflation remained a threat to the Fed’s fight against price gains. 

Overall, the data showed signs of cracks in the American labor market, a day after a private payrolls report suggested resilience that may warrant several more rate hikes. Traders are betting on at least one more increase this year though they have not fully priced in a second hike.

Chicago Fed President Austan Goolsbee left the door open for more data to sway officials ahead the central bank’s next meeting. “We’re getting to a more sustainable pace, which is what we need to do for inflation,” Goolsbee said of Friday jobs data in an interview on CNBC.

Traders will be closely watching next week’s consumer price print. Bloomberg economists are expecting the headline number to fall 3.1 per cent though they don’t see that stopping the Fed on July 26. Reports from the big banks including Citigroup Inc. and JPMorgan Chase & Co. may also set the tone for second quarter earnings.

Friday’s payroll numbers were not yet weak enough to stop the central bank’s tightening, according to Seema Shah, chief global strategist at Principal Asset Management. 

“Jobs growth has slowed but remains too strong to justify an extended Fed pause,” she said. “More significantly, with average hourly earnings surprising to the upside, wage pressures are still too strong. Today’s report will give the Fed little reason to hold off from hiking at the July meeting.”

June’s 0.4 per cent wage growth indicates businesses are still desperate to draw in and keep workers, according to Jeffrey Roach, chief economist at LPL Financial.

“The latest jobs report all but ensures the Fed will increase rates later this month,” he wrote.

Stocks have been losing ground in July after a strong first half of the year as hawkishness from central banks from the U.S. to the UK dampens hopes of a soft landing for the global economy. Technology shares have been one of the hottest trades, driven by the buzz around AI, but Bank of America Corp. strategists said investors who piled into the sector risk being caught off-guard in the selloff sparked by rate hikes.

“We say ‘sell the last hike’ will hit tech hardest,” the BofA team led by Michael Hartnett wrote in a note. But if excitement over AI continues, they said the “baby bubble” that currently exists in a handful of Big Tech shares will mature into a larger one in the second half.

Dallas Fed President Lorie Logan voiced her concerns on Thursday that inflation was still running too hot and more tightening was needed. Policymakers elsewhere share that view, with European Central Bank President Christine Lagarde saying there is still “work to do” to bring inflation under control.

Gold advanced Friday while crude futures traded higher after the Biden administration said its purchasing 6 million more barrels of oil for strategic reserves. 

Key Events This Week:

• ECB’s Christine Lagarde addresses an event in France, Friday
• Some of the main moves in markets today:

Stocks

• The S&P 500 fell 0.3 per cent as of 4:03 p.m. New York time
• The Nasdaq 100 fell 0.3 per cent
• The Dow Jones Industrial Average fell 0.6 per cent
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index fell 0.7 per cent
• The euro rose 0.7 per cent to US$1.0967
• The British pound rose 0.7 per cent to US$1.2834
• The Japanese yen rose 1.4 per cent to 142.10 per dollar

Cryptocurrencies

• Bitcoin fell 0.3 per cent to US$30,230.46
• Ether fell 1.1 per cent to US$1,863.42

Bonds

• The yield on 10-year Treasuries advanced three basis points to 4.06 per cent
• Germany’s 10-year yield advanced one basis point to 2.64 per cent
• Britain’s 10-year yield declined one basis point to 4.65 per cent

Commodities

• West Texas Intermediate crude rose 2.6 per cent to US$73.66 a barrel
• Gold futures rose 0.8 per cent to US$1,931.30 an ounce