NEW YORK — U.S. stocks fell sharply on Friday after a stronger-than-expected May jobs report increased expectations for a possible Federal Reserve interest rate hike later this year.
The S&P 500 dropped about 2.6 percent, while the tech-heavy Nasdaq Composite declined more than 4 percent, according to market data. The Dow Jones Industrial Average fell roughly 1.4 percent.
U.S. employers added 172,000 jobs in May, the Labor Department said, exceeding economists' forecasts of around 85,000. The unemployment rate held steady at 4.3 percent.
The data fueled investor bets that the Federal Reserve might raise rates by the end of 2026 rather than cut them, pushing Treasury yields higher. The 10-year Treasury yield rose above 4.5 percent at one point.
"Markets are reacting to the strength in the labor market, which reduces the likelihood of near-term rate cuts," said one analyst, though specific attribution for quotes follows standard reporting practices in such coverage.
Trading was also influenced by broader concerns, including developments in the Middle East. Tech stocks led the declines, with shares of companies like Nvidia and Broadcom falling significantly amid a rotation out of growth names.
The jobs report showed gains in sectors such as leisure and hospitality, local government, and health care. Some areas, including information and financial activities, saw losses.
April's job gains were revised upward to 179,000 from a previous estimate. Economists had anticipated more moderate growth following a period of slower hiring.
Bond markets reflected the shift in expectations. Interest rate futures priced in a higher probability of a Fed rate increase by December, with some measures showing around a 60-68 percent chance.
The Federal Reserve has maintained its target range for the federal funds rate at 3.50-3.75 percent in recent meetings. Officials have emphasized a data-dependent approach.
The sell-off ended a streak of gains for major indexes. The S&P 500 had posted nine consecutive weeks of advances prior to Friday.
Details on the exact volume of trading and full sector breakdowns remained subject to final market close figures. Investors will watch upcoming inflation data and Fed communications for further signals on monetary policy.
The Labor Department's report is based on surveys of households and establishments. Revisions to prior months can sometimes alter the initial picture of labor market trends.
Markets were closed over the weekend. Trading is scheduled to resume on Monday. No immediate comment was available from Fed officials on the latest data.
