US stocks tumble after jobs report suggests further rate rises

US stocks tumbled on Friday following a week of choppy trading, after a closely watched labour market report pointed to persistently strong jobs growth and deflated investors’ hopes that the Federal Reserve would soon ease the pace of its interest rate rises.

The benchmark S&P 500 closed down 2.8 per cent in New York, its largest daily loss in more than three weeks as about 94 per cent of the stocks in the index slid in value. The technology-heavy Nasdaq Composite tumbled 3.8 per cent.

The losses followed data that showed US employers added 263,000 new jobs in September, down from 315,000 in August but above Wall Street expectations.

Investors have been scrutinising jobs data for clues about the future direction of US monetary policy. The temperature of the labour market is regarded as a crucial influence on decision-making by the Federal Reserve, with signs of robustness typically fuelling expectations that the central bank will continue with aggressive interest rate rises.

Futures markets were on Friday pricing in the probability of the Fed raising rates by 0.75 percentage points in November, which would mark the fourth consecutive increase of such magnitude. The central bank’s current target range stands at 3 to 3.25 per cent.

“This is another example that things are quite strong and the Fed is going to have to do more [to rein in inflation],” said Gregory Peters, co-chief investment officer for PGIM Fixed Income. Higher interest rates raise borrowing costs for companies and eat away at their valuations, which is why stocks fell following the strong jobs report.

Friday’s report from the US Bureau of Labor Statistics also showed that the rate of unemployment had dropped unexpectedly to 3.5 per cent, from 3.7 per cent a month earlier, as the share of Americans either employed or seeking a job declined slightly.

“Today’s job number is a hawkish reading, with almost all the elements of the report moving in the wrong direction for the Fed,” said Seema Shah, chief global strategist at Principal Global Investors.

“Payrolls were broadly in line with expectations but, importantly in this good news is bad news, period: markets were hoping for a downside surprise today. Instead, the number only confirms that the Fed needs to hike rates by a fourth consecutive 0.75 [percentage points] in November.”

The downbeat mood towards the end of week reversed most of the gains logged on Monday and Tuesday, when stocks shot higher on bets that volatile swings in financial markets and some weakening economic data could curb the Fed’s appetite to keep aggressively raising interest rates.

A surprise decision on Tuesday by the Reserve Bank of Australia to lift rates by a smaller-than-expected quarter point helped support the view that policymakers across the globe were attuned to the market turmoil and could shift their thinking as a result.

The S&P 500 ended the week 1.5 per cent higher, while the Nasdaq closed up 0.7 per cent.

Helping drive equities lower on Friday was a drop in semiconductor stocks following an announcement from the White House that it will implement export controls that limit China’s access to semiconductors.

Advanced Micro Devices was among the biggest fallers on the Nasdaq on Friday, with its shares losing just under 14 per cent after the US chipmaker on Thursday cut its third-quarter revenue estimate by about $1.1bn from its previous forecast. Shares in other semiconductor groups also fell, with Qualcomm down more than 3 per cent and Nvidia down 8 per cent.

Europe’s regional Stoxx 600 share gauge closed down 1.2 per cent on Friday, trimming its advance for the week to 1 per cent.

In government bond markets, the yield on the 10-year US Treasury note added 0.06 percentage points to 3.89 per cent. The 10-year UK yield rose 0.1 percentage points to 4.26 per cent. Bond yields rise as their prices fall.

The dollar advanced 0.5 per cent against a basket of six peers. The pound slipped 0.7 per cent against the greenback to $1.108, following declines in the two previous sessions. The currency remains well above the record low of $1.035 it fell to at the start of last week, after UK chancellor Kwasi Kwarteng unveiled his “mini” Budget on September 23.