Wall Street Stocks Stabilize Despite Massive Bond Sell-Off Following U.S. Payroll Report

Market hopes for a near-term rate cut by the Federal Reserve are once again hindered, this time by the surprising strength of the U.S. labor market, as partially revealed by the official May non-farm payroll report.

The two-year Treasury yield soared by 12.7 basis points (bps), and in the implied rates of the derivatives market, the probability of the Fed holding rates steady in September increased from 31% to 46%. As a result, market attention will be focused on next week’s Fed meeting.

Wall Street experienced volatility, opening in the red before turning to short-lived gains. The Dow Jones rose by 0.23%, while the S&P 500 and the Nasdaq Composite showed no significant changes.

Overall, this development is unlikely to significantly alter the Federal Reserve’s short-term decisions. If anything, it reduces the likelihood of a rate cut in the summer.

The report is solid but contains several contradictory signals. Noteworthy are the strong payroll numbers, coupled with an increase in the unemployment rate; positive wage growth, alongside a decline in the labor force participation rate; and a rebound in cyclical hiring, alongside continued declines in key sectors such as temporary help services.

Meanwhile, in Europe, the regional Euro Stoxx 50 slipped by 0.3%, and London’s FTSE 100 fell by 0.48% near the close.