[BODY]
A surprisingly strong U.S. labor market sent U.S. Treasury yields and the odds of a Federal Reserve rate hike this year sharply higher. As the case for monetary tightening gained momentum, New York stocks tumbled, led by technology shares that face hefty interest costs.
On the New York Stock Exchange on May 5 (local time), the Dow Jones Industrial Average closed at 50,866.78, down 695.15 points (1.35%) from the previous session. The Standard & Poor's 500 index fell 200.63 points (2.65%) to 7,383.68, and the Nasdaq Composite dropped 1,121.53 points (4.18%) to 25,709.43.
Among the largest tech stocks by market capitalization, Nvidia fell 5.96%, while Apple (-1.18%), Microsoft (-2.68%), Amazon (-3.01%), Google parent Alphabet (-0.89%), Broadcom (-7.76%), Tesla (-6.61%), Facebook parent Meta (-5.54%) and Micron (-12.87%) all weakened.
What pressured New York stocks that day was last month's nonfarm payrolls data, which far exceeded expectations. The U.S. Labor Department said nonfarm payrolls rose by 172,000 in May from April. That was more than double the market forecast of 80,000. In addition, job gains in March and April were revised up by 29,000 and 64,000, respectively. The combined upward revisions for March and April reached 93,000. The unemployment rate for May came in at 4.3%, unchanged from April.
The strong employment data spread expectations in the market that the Fed would focus its monetary policy on price stability rather than the labor market for the time being. The U.S. personal consumption expenditures (PCE) price index, which the Fed uses as a benchmark for monetary policy, rose 3.8% year-on-year in April, the highest level since May 2023.
The yield on the 30-year U.S. Treasury, a benchmark for U.S. mortgages and high-grade corporate bonds, immediately surged, again breaching the psychological resistance level of 5.0% during the session. The 10-year yield, the benchmark for global bond markets, also exceeded its psychological resistance level of 4.5%. The yield on the 2-year U.S. Treasury, which is sensitive to monetary policy, jumped 0.12 percentage point from the previous session to 4.17% intraday, the highest level since February last year.
According to the CME FedWatch Tool, the federal funds futures market priced in a total 71.1% probability that the Fed would raise its benchmark rate by the end of this year. That compared with 50.5% as of the previous day. The probability of a rate hold fell from 47.4% to 27.9%, and the probability of a rate cut dropped from 2.2% to 1.0%.
As bond yields rose, the price of gold — a safe-haven asset that pays no interest — fell sharply. On the New York Mercantile Exchange that day, gold futures for August delivery closed at $4,365.3 per troy ounce, down 3.1% from the previous session. With this, gold futures, which had risen to $5,000 per troy ounce early this year, gave up all their gains.
International oil prices fell on expectations that the conflict between the United States and Iran would not escalate. On the ICE Futures exchange in London, Brent crude futures for August delivery dropped 2.0% to $93.09 a barrel, while West Texas Intermediate (WTI) futures for July delivery on the New York Mercantile Exchange fell 2.7% to $90.54 a barrel.
Bitcoin, the largest cryptocurrency by market capitalization, briefly fell below $60,000 during the session. That was the lowest level since November 2024, when Donald Trump, who is friendly to cryptocurrency, won reelection. Compared with the all-time high of $126,210 set on Oct. 6 last year, it fell 52.7% in eight months. The drop reflected the recent sale of bitcoin by Strategy, a crypto-accumulating firm, as well as outflows from cryptocurrency exchange-traded funds (ETFs). On top of that, prospects for a rate hike dealt another blow.
