The jobs report doubled expectations. Why the stock market doesn’t like it
Good news isn’t always good, at least when it comes to the stock market. The U.S. economy added 172,000 jobs in May, far above the Dow Jones consensus estimate of 80,000. Unemployment also held steady at 4.3%. Stocks, however, didn’t take the report well , as it sent yields rising and made it even less likely that the Federal Reserve will ease U.S. monetary policy anytime soon. S & P 500 and Nasdaq 100 futures were down 0.7% and 1.4%, respectively, ahead of the 9:30 a.m. ET open. The benchmark 10-year Treasury note yield topped 4.53% to hit its highest level since late May. The 2-year note yield also reached its highest level since February 2025. The CME Group’s FedWatch tool also showed the chances of at least a quarter-point rate increase in October are above 50%. “The May payroll report provides further confirmation that the labor market has stabilized and accelerated in 2026 following last year’s malaise, with a clearly positive direction of travel that’s consistent with the momentum from the strong job openings report earlier in the week,” said Jeff Schulze, head of economic and market strategy at ClearBridge Investments. ” From the Fed’s vantage point, strong job creation and steady wage gains alongside a resilient US consumer suggest that labor-driven inflationary concerns cannot be ignored — a hawkish development. We believe that today’s print is modestly negative for equity markets with higher yields likely to pressure valuations to a greater degree than labor resiliency will lift growth expectations,” he added. On top of the report’s implications for the Fed and the bond market, higher yields are going to knock the valuations of tech stocks as it reduces the value of their future earnings and raises the borrowing costs to further fuel the artificial intelligence boom. AI-related stocks were already reeling after a lackluster report from Broadcom earlier this week. They continued to falter on Friday. Nvidia lost nearly 2%, while Micron and Marvell Technology dropped close to 5% each. Ryan Weldon, portfolio manager at IFM Investors: “The May employment data showed a solid increase in payrolls, solidifying the trend of a solid jobs market in the first half of 2026. While the strength in the jobs market will be a welcome trend for the Fed, inflation will sit in pole position as the key focus of the June meeting in a couple of weeks. Between differing economic views across presidents and the fact that this will be Kevin Warsh’s first meeting as Fed Chair, the June Fed meeting will likely be full of surprises, even as the Fed is expected to hold rates.” Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management: “Payroll Blowout! We’ve gained more and more confidence in the last prints that the Fed doesn’t have to be worried about the labor market. Laser focused on inflation and it will all come down to the duration of this War to determine the Fed’s next move. For now, the move is to not move: HOLD.” Jerry Tempelman, VP of economic and fixed income research at Mutual of America Capital Management : “Today’s numbers are consistent with other positive recent labor market indicators as well, such as better-than-expected job openings and declining layoffs. Employers appear to be looking past economic and financial uncertainties brought about by the ongoing conflict in the Middle East.” Glen Smith, chief investment officer at GDS Wealth Management: “Friday’s jobs report was much stronger-than-expected and shows that the labor market is turning a corner after a rough past 12 months driven by fears of AI and uncertainty over geopolitics and tariffs. The revival of the labor market makes the Federal Reserve’s job easier and allows it to keep rates steady in the meantime as it assesses the volatile inflation situation.” Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management: “Today’s upside surprise underscores ongoing economic resilience, but it will also likely keep the Fed—and the markets—focused on inflation pressures.” Jeffrey Roach, chief economist at LPL Financial: “Payroll activity was mixed in May as retail trade shed workers across most subcategories. But relative to longer trends, retailers have kept payrolls stable at roughly 15.5 million across the country. This category is important to monitor in the months ahead as consumers could pull back demand as inflation pressures linger.” Bret Kenwell, U.S. investment analyst at eToro: “This may not be a red-hot jobs market, but it’s certainly solid. While that’s good news for the US economy, borrowers and investors may feel differently. If the labor market is in a good spot, the Fed can put more of its focus on inflation. In a best-case scenario, the geopolitical backdrop cools and oil prices retreat, allowing the Fed to wait for the recent inflation spike to moderate. However, if policymakers even start talking about rate hikes or taking a more hawkish posture, that could throw cold water on the recent stock market surge.” Thomas Simons, chief U.S. economist at Jefferies: “One can quibble about the ‘quality’ of net job creation or the concentration in specific sectors, but the bottom line is that labor demand has improved substantially since last year, and businesses are broadly able to continue to replace departing workers and increase output through strong productivity. This suggests that rates are going to remain elevated for some time as demand for capital investment continues to increase. Nominal rates will eventually fall once the productivity gains reduce inflation expectations, but that is probably a long way off at this point.” Sonu Varghese, chief macro strategist at Carson Group: “We’ve argued the labor market is stronger than the bears think, and the data are backing that up. Payroll gains are running at a 188,000 three-month average, while unemployment remains near historic lows at 4.3%. That pushes back against the ‘AI is killing jobs’ narrative, and with inflation rising, it also means Fed policy is becoming increasingly easy.” Eric Merlis, co‑head of global markets at Citizens: ” May’s jobs report was another convincing beat, with payrolls coming in well above expectations and prior months revised sharply higher. The labor market is showing no signs of slowing down, and fears of AI-driven job destruction remain more headline than reality. This strength should further solidify the Fed’s focus on the inflation side of its dual mandate, particularly as elevated energy prices tied to the conflict in Iran keep inflation well above target.”
