US stocks dip as strong jobs data fuels rate-hike odds

U.S. equities slipped on Friday following a Labor Department report that employers added 162,000 jobs in August, far above the 65,000 forecast. The S&P 500 dropped 0.4%, the Dow Jones Industrial Average fell 0.5% and the Nasdaq lost 0.3%, though the S&P managed a modest weekly gain.

The stronger-than-expected payrolls data lifted market expectations that the Federal Reserve will raise its benchmark interest rate at the September 16 meeting, with the probability of a hike rising to about 60% according to CME FedWatch. Analysts noted the report gives policymakers more leeway to act against inflation, which remains above the Fed’s 2% target.

"Today’s jobs report does lean toward the Fed increasing rates," said Terry Sandven, chief equity strategist at U.S. Bank Asset Management Group, adding that a hike is "not a foregone conclusion."

"Given the strength of the payroll report, a rate hike on Sept. 16 appears increasingly likely," said Jeffrey Roach, chief economist for LPL Financial.

The unemployment rate held steady at 4.1%, while revisions added 55,000 jobs to June and July figures. The market also weighed comments from Fed officials: Chair Kevin Warsh warned that inflation has not improved enough, while Governor Christopher Waller said he would keep rates unchanged if upcoming data show cooling inflation.

Treasury yields rose, with the 10-year note climbing to 4.78% and the two-year reaching 4.37%, reflecting heightened expectations of tighter monetary policy. Technology shares helped limit broader losses, with Nvidia up 0.8% and AMD gaining 4.7%, while apparel retailer Lululemon fell 17.4% after missing revenue estimates.

Oil prices continued to climb amid heightened tensions in the Middle East, with Brent crude settling at $96.28 a barrel and U.S. crude at $91.48. Higher fuel costs are expected to push gasoline and diesel prices to seasonal highs.

U.S. stock markets will be closed on Monday for the Labor Day holiday.