Wall Street got a reality check, with data showing a hot labor market that will likely keep the Federal Reserve on its aggressive hiking trail. Those bets sent stocks tumbling, pushing benchmark Treasury yields toward their longest weekly up streak since 1984.
To David Donabedian at CIBC Private Wealth US, the report puts an "an exclamation point" on the idea that the market bottoming process is going to be a long one. In this "bizarro world" of big hikes, traders may see the solid data as a reason to brace for turmoil, says Callie Cox of eToro.
The bottom line for Brown Brothers Harriman's Win Thin is that a 75-basis-point Fed boost in November is a "done deal," with another increase of that size in December becoming a "real possibility."
Almost 95% of the companies in the S&P 500 fell, with a rout in big tech weighing heavily on the market.
The slide comes a few days after the gauge notched its biggest two-day rally since the onset of the pandemic amid a debate on whether the Fed would be closer to "peak hawkishness."
Those gains put the measure on track for its best week in a month — despite Friday's plunge. Energy shares climbed with oil.
Ten-year yields topped 3.8%, heading toward their 10th consecutive weekly rise. The dollar advanced. The swap contract for the November Fed meeting priced in nearly 75 basis points of tightening.
Rate Peak
Market-implied expectations for where the rate will peak also increased, with the derivative contract for the March gathering trading around 4.65%. The current range for the benchmark rate stands between 3% and 3.25%.
Fed Bank of New York President John Williams said rates need to rise to around 4.5% over time, but the pace and ultimate peak of the tightening campaign will hinge on how the economy performs.
Several officials, in separate remarks this week, delivered a resolutely hawkish message that price pressures remain elevated and they won't be deterred from raising rates by volatility in financial markets.
All eyes will now be on next week's U.S. inflation data after a hotter-than-expected reading in August tempered hopes of a nascent slowdown. Separately, minutes from the Fed's September meeting will give clues into the central bank's tolerance for economic pain.
Amid fears of a looming recession, investors poured the most money into cash since April 2020, but stocks could see further declines as they don't fully reflect that risk, according to Bank of America Corp. strategists.
