Shortly after markets opened on Wall Street on Thursday, the Dow Jones began to tumble downward, sliding nearly 500 points by late morning. The Nasdaq and S&P 500 suffered comparable losses.
Parallel to the stock collapse was a sharp rise in the yield of both 2-year and 10-year US Treasury bonds, both of which reached their highest levels since March. The bond markets have been locked in an inverted yield curve for over a year as investors anticipate the Federal Reserve’s interest rate hikes will soon trigger a recession.
“But more employed people should be a good thing, right? So why are stocks down?” readers are probably wondering. According to financial analysts, the fear is that such strong employment numbers will likely mean the Fed will keep interest rates higher for longer, or that they might even increase more as the central bank feels more confident that doing so won’t crash the economy.
“The market clearly would have preferred an in-line number,” John Lynch, chief investment officer at Comerica Wealth Management, told US media, referring to Wall Street’s expectations. “But because it was more than double expectations, that really ratchets up the fear factor that the Fed would have to be more aggressive.”
However, ADP’s reports are not as precise as the US Department of Labor’s monthly jobs reports, the next of which is expected to drop on Friday, covering the month of June, so more chaos might be in store for the markets.