US stocks and bonds tumbled, sending yields to multi-year highs, after a surge in hiring bolstered expectations the Federal Reserve will raise interest rates again this year.
(Bloomberg) — US stocks and bonds tumbled, sending yields to multi-year highs, after a surge in hiring bolstered expectations the Federal Reserve will raise interest rates again this year.
The S&P 500 and the tech-heavy Nasdaq 100 both slumped at the start of trading. Yields on 10-year Treasuries neared 4.9% while the 30-year bond rose above 5% — both at the highest since 2007. Swap traders are now pricing in a one-in-two chance of a rate hike by December.
The nonfarm payrolls report showed employers quickened the pace of hiring, with 336,000 jobs being added in September — well ahead of economists estimates. The unemployment rate held steady at 3.8%, data from the Bureau of Labor Statistics showed Friday.
“Not only does today’s report indicate the economy is almost too hot to handle and the Fed will need to respond with more rate hikes, it reinforces the higher for longer narrative that has been spooking bond markets for the past few weeks,” said Seema Shah, chief global strategist at Principal Asset Management. “Markets want the perfect landing and instead they are facing an upward sloping path.”
The latest labor numbers may also be shaking Wall Street’s faith in the Fed’s ability to cool the economy without stoking a recession.
“Investors were looking for a job report that is weak enough to keep the Fed from raising rates while also not being so weak as to stoke fears of a hard landing,” said Bryce Doty, senior portfolio manager at Sit Investment Associates. “This report is clearly going to put a rate increase firmly back on the table.”
“The job market is very strong — no other way to say it. Headline is much stronger than expected,” said Dennis DeBusschere, founder of 22V Research. “It is what it is — likely negative for stocks and bonds on the day.”
Job data earlier this week provided a more discordant narrative: job-openings overshot estimates, while a measure of private employment from ADP was weaker than forecast.
A global bond selloff has been hammering risk assets from stocks to corporate credit on concerns that central banks will keep interest rates elevated longer than expected.
Read: The 5% Bond Market Means Pain Is Heading Everyone’s Way
Traders have record sums riding on the outcome of November’s Fed meeting as investors and policymakers debate the likelihood of a further rate increase this year. San Francisco Fed President Mary Daly, who doesn’t vote on the Fed’s rate-setting committee this year, said the central bank may keep rates on hold if inflation and the jobs market cool.
Beaten-down bonds will make a comeback in 2024 when higher interest rates send the economy into a recession, according to Bank of America Corp.’s Michael Hartnett.
Once the recession being priced by bond and stock markets “mutates into economic data, bonds rally big and bonds should be the best performing asset class in the first half of 2024,” Hartnett wrote in a note.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.5% as of 9:30 a.m. New York time
- The Nasdaq 100 fell 0.7%
- The Dow Jones Industrial Average fell 0.2%
- The Stoxx Europe 600 rose 0.5%
- The MSCI World index fell 0.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.4% to $1.0512
- The British pound fell 0.3% to $1.2156
- The Japanese yen fell 0.6% to 149.36 per dollar
Cryptocurrencies
- Bitcoin fell 0.3% to $27,405.63
- Ether rose 0.5% to $1,625.23
Bonds
- The yield on 10-year Treasuries advanced 12 basis points to 4.84%
- Germany’s 10-year yield advanced five basis points to 2.93%
- Britain’s 10-year yield advanced seven basis points to 4.61%
Commodities
- West Texas Intermediate crude rose 0.6% to $82.79 a barrel
- Gold futures were little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Cecile Gutscher, Sagarika Jaisinghani, Richard Henderson and John Viljoen.
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