Stocks fell as bond yields rose after a strong manufacturing report offset optimism with job data indicating the Federal Reserve is nearing the end of its hiking cycle.
The S&P 500 finished with a small gain ahead of Monday's US holiday, while also recording its best week since June. Tesla fell 5%, while energy stocks rose as oil surpassed $85 per barrel. After falling as much as 11 basis points in the immediate aftermath of the August payrolls figures, Treasury two-year yields have reversed course. The US dollar reached a three-month high.
The jobs report revealed a labor market that is experiencing a controlled cooling, as evidenced by solid hiring, slower earnings growth, and more people returning to work. The easing allows the Fed to pause rate hikes this month while keeping the door open for another hike later in the year.
Swap contracts are still pricing in a less than 50% chance of another Fed hike this year, while bets on a cut have been shifted from June to May.
According to Loretta Mester, President of the Federal Reserve Bank of Cleveland, inflation remains too high despite recent improvements, and the labor market remains strong. "Future policy decisions will be about managing the risks and intertemporal costs of tightening versus loosening monetary policy," she predicted.