Wall St Slides As Solid Jobs Data Supports Rate Hike Bets

U.S. stock indexes fell on Friday after a solid jobs report appeared to give the Federal Reserve a green light to continue on an aggressive policy-tightening path to cool decades-high inflation while shares of Apple and Tesla weighed heavily.

Ten of the 11 major S&P sectors declined, with consumer discretionary down 2.8% and technology falling 2.4%. The energy sector was an outlier with a gain of 1%.

The Labor Department's closely watched report showed nonfarm payrolls rose by 390,000 jobs last month and wages grew, while the unemployment rate held steady at 3.6% - all signs of a tight labor market.

Economists polled by Reuters had forecast nonfarm payrolls to rise by 325,000 jobs.

So while the jobs report looked good to economists, investors were focused primarily on its influence on policy.

"The market is trying to funnel its response through what the Fed may or may not do," said Nela Richardson, chief economist at ADP, who expects the market to continue to seesaw as a result of uncertainty.

Shawn Snyder, head of investment strategy at Citi Personal Wealth Management, called the report a double-edged sword.

"It's telling us the economy is in fairly good shape which is good news but when viewed in the context of what it means for the Federal Reserve and tightening monetary policy it likely makes them more confident they can continue to tighten," he said. "That comes through as a bit of a negative for investors because they're hoping for the Fed to pause later this year."

Money markets are fully pricing in 50 basis-point rate hikes by the Fed in June and July.

While the May report's slower-than-expected increase in hourly earnings looked like good news for inflation, Snyder cited rising oil prices as an offsetting factor.

By 2:35 p.m. EDT, the Dow Jones Industrial Average fell 263.57 points, or 0.79%, to 32,984.71, the S&P 500 lost 58.42 points, or 1.40%, to 4,118.4 and the Nasdaq Composite dropped 282.66 points, or 2.29%, to 12,034.24.

Volatility has gripped Wall Street in recent weeks as investors debated whether markets had hit a bottom against the backdrop of some hawkish comments from Fed officials and data suggesting that inflation may have peaked.

"For right now, the economy looks OK. And the labor market as a signal of the real economy on Main Street looks incredibly solid," said ADP's Richardson, who sees inflation as "a threat to that outlook" even if it may have peaked.

"The peak is less relevant than the staying power of inflation and elevated rates. That's why wages in this report were so material. While wage growth may not drive up inflation past the peak, it could play a strong role in keeping inflation around these higher levels much longer than anybody wants or anticipates."

Apple Inc was down just under 4% after a bearish brokerage comment and a report that EU countries and lawmakers would agree on a common charging port for mobile phones, tablets and headphones on June 7, a proposal that has been criticized by the iPhone maker.

Tesla Inc was down almost 9% after CEO Elon Musk, in an email to executives seen by Reuters, said he has a "super bad feeling" about the economy and needs to cut about 10% of jobs at the electric car maker.

Meanwhile, after markets close, FTSE Russell will announce an early list of index members as a part of its annual reconstitution aimed at reflecting shifts in the broader market.

Declining issues outnumbered advancing ones on the NYSE by a 2.97-to-1 ratio; on Nasdaq, a 1.87-to-1 ratio favored decliners.

The S&P 500 posted 1 new 52-week high and 29 new lows; the Nasdaq Composite recorded 26 new highs and 80 new lows.