In an ironic twist, the Dow actually fell on the heels of the news of a positive jobs report.
Friday’s job report solidly beat expectations with an addition of 224,000 jobs in the month of June. This figure crushed May’s job report when only 72,000 new jobs were added to the domestic workforce.
By late Friday morning, the Dow had plummeted 120 points. The S&P 500 and Nasdaq were also down about 0.6 percent. This dip came after Wednesday’s record highs leading into Thursday’s holiday.
While the news of a better than expected job growth is certainly a good overall indicator for the economy, investors are now worried that the Federal Reserve will not cut interest rates at the end of the month. Prior to the jobs report, the Chicago Mercantile Exchange had been predicting a 40 percent chance that the Fed would slash rates by a half-point at its July 31 meeting. However, this prediction is now down to 6 percent.
Investors have grown skittish with the outlook for a rate cut now more uncertain. This uncertainty spurred the drop in the markets.
While an interest rate cut is now less likely, the Fed will not merely be observing the markets in the month to come. Financial experts do not believe that the Fed will sit on the sidelines with no action in light of the increasing trade war worries. With no end in sight to trade issues between the US and China, the Fed may choose to put an insurance cut in place.
Although it is not likely that the Fed will institute a half-point rate cut, it is still expected to slash rates by a quarter-point.
While the markets dropped at the news of the jobs report and the effect that it will have on probable rate cuts, a few industries surged on the news. Bank stocks surged on the news that a significant rate cut is not in the near future. Bond yields were also boosted following the release of the jobs report.