Wall Street Ends Down As Rate Hike Pressure Still Exists

On Friday, Wall Street ended lower, as a strong US jobs data report eliminated hopes of a slowdown in the aggressive monetary policy tightening of the Federal Reserve, which is aimed at taming down the decades-high inflation numbers. The market was dragged down by tech heavyweights, such as Tesla Inc. and Apple Inc., as they brought down the technology and consumer discretionary sectors. Meanwhile, an increase in the price of oil saw the energy sector outperform the rest. The report of the Labor Department on nonfarm payrolls for the month of May had been closely watched. The data showed that jobs had increased by 390,000 in the previous month.

There was also an increase in wages, while the unemployment rate was holding steady at about 3.6%. All of these are indicators of a tight labor market. Economics had predicted that there would be an addition of 325,000 jobs in the month, but the number exceeded their expectations. The jobs report did give reassurances about the economy’s current status, but most investors were interested in the numbers to get hints of the future stance of the central bank. Market economists said that investors wanted to know what the Fed will decide to do.

The volatility in the market is expected to continue because of the uncertainty surrounding inflation and interest rates. Many experts believe that the jobs report is a double-edged sword. First off, the report shows that the US economy is doing quite well, which is certainly good news. However, the implications it has on the actions of the Federal Reserve and a further increase in interest rates are negative because investors have been hoping that the central bank would hit a pause in this matter. The markets have already priced in a hike of 50-basis points in the interest rate in June and July as well.

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While it had seemed that the slower-than-expected rise in hourly earnings in the month of May just might help with inflation, the increasing oil prices just set it off. Data indicates that there was a loss of 1.64% in the S&P 500 index, as it declined by 68.42 points. The tech-heavy Nasdaq Composite, on the other hand, fell by almost 2.48% and closed at 12,011.40. There was a 1.06% fall recorded in the Dow Jones Industrial Average, as it declined by 351.39 points. Recent weeks has shown a great deal of volatility in the markets, with investors trying to decide if they have hit rock bottom.

Some officials of the Fed have also made hawkish comments and there are rumors that the inflation has reached its peak. The economy may look decent for now and the labor market also gives the same indication. However, whether inflation has reached its peak or not, is not that important. Instead, the focus should be more on the elevated rates as well as the power of inflation. Therefore, the wages data is extremely important because the growth in wages could keep inflation at high numbers, even if it does not push it up.

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