Wall Street got a reality check, with data showing a hot labor market that will likely keep the Federal Reserve on its aggressive hiking trail. Those bets sent stocks tumbling, driving benchmark Treasury yields to their longest weekly up streak since 1984.

To David Donabedian at CIBC Private Wealth U.S., the report puts an “an exclamation point” on the idea that the market-bottoming process is going to be “a long one”. In this “bizarro world” of big hikes, traders may see the solid data as a reason to brace for turmoil, says Callie Cox of eToro. The conclusion for Brown Brothers Harriman’s Win Thin is that a 75-basis-point Fed boost in November is a “done deal,” with another increase of that size in December becoming a “real possibility.”

Almost 95 per cent of the companies in the S&P 500 fell. The slide came just a few days after the gauge notched its biggest back-to-back rally since the onset of the pandemic amid a debate on whether the Fed would be closer to “peak hawkishness.” Those gains gave the measure its best week in a month even with the post-jobs plunge. The Nasdaq 100 sank nearly 4 per cent Friday.

Ten-year yields approached 3.9 per cent amid their 10th consecutive weekly rise. The dollar advanced. The swap contract for the November Fed meeting priced in nearly 75 basis points of tightening. Market-implied expectations for where the rate will peak also increased, with the derivative contract for the March gathering trading around 4.66 per cent. The current range for the benchmark rate stands between 3 per cent and 3.25 per cent.

Fed Bank of New York President John Williams said rates need to rise to around 4.5 per cent over time, but the pace and ultimate peak of the tightening campaign will hinge on how the economy performs. Several officials, in separate remarks this week, delivered a resolutely hawkish message that price pressures remain elevated and they won’t be deterred from raising rates by volatility in financial markets.

Former Treasury Secretary Lawrence Summers said it’s important for the Fed to deliver on the further monetary tightening it has signaled, even in the face of financial risks stemming from its actions.

All eyes will now be on next week’s U.S. inflation data after a hotter-than-expected reading in August tempered hopes of a nascent slowdown. Separately, minutes from the Fed’s September meeting will give clues into the central bank’s tolerance for economic pain.

Amid fears of a looming recession, investors poured the most money into cash since April 2020, but stocks could see further declines as they don’t fully reflect that risk, according to Bank of America Corp. strategists. Their report cited EPFR Global data showing cash funds received nearly US$89 billion in the week through Oct. 5 -- while investors withdrew US$3.3 billion from global stock funds.

Wall Street is “rebelling against” policy tightening, the strategists led by Michael Hartnett wrote before the labor-market report.

From a technical perspective, the fact that the S&P 500 remains oversold enough alongside bearish sentiment may warrant “more rally efforts” that could materialize as early as next week, according to Dan Wantrobski at Janney Montgomery Scott.

“The data being reported alongside our proprietary cycle work to date gives us confidence that we are on the right track in anticipating more of a ‘U’-shaped market bottom and recovery in the months ahead (into 2023),” he added. “We believe the floor will be established at some point in the weeks/months ahead -- but for now, investors should continue to expect a very choppy glide path due to significant macro overhang.”

More comments on jobs:

Jeffrey Roach, chief economist at LPL Financial:

“In a word: ‘frustrating.’ As long as job gains are strong, the markets should expect aggressive rate hikes by the Federal Reserve.”

Michael Shaoul, chief executive officer at Marketfield Asset Management:

“This report should keep expectations of any ‘dovish pivot’ at bay, and underlines our concerns that any shift in policy is much more likely to be provoked by much worse financial market conditions than a soft landing in the underlying U.S. economy.”

Shawn Cruz, head trading strategist at TD Ameritrade:

“The market has been in a ‘bad-news-is-good-news’ mentality and there’s really no bad news in this report. It’s a solid jobs report, but it’s not what the market wants to see because it doesn’t give the Fed a reason to pause or shift away from its hawkish intentions.”

Ronald Temple, managing director at Lazard Asset Management:

“While job growth is slowing, the U.S. economy remains far too hot for the Fed to achieve its inflation target. The path to a soft landing keeps getting more challenging. If there are any doves left on the FOMC, today’s report might have further thinned their ranks.”

Seema Shah, strategist at Principal Global Investors:

“Today’s job number is a hawkish reading. With the Fed’s dot plot pointing to policy rates closer to 5 per cent than 4 per cent next year, we have a market that is wishing for the economy to slow quickly. That’s when you know there is only one path ahead: risk assets have further to fall.”

Ian Lyngen, head of U.S. rate strategy at BMO Capital Markets:

“On net, it was a strong enough read to keep a 75 bp Nov hike as the path of least resistance, but the deceleration in wage growth YoY adds to the case for a slowed hiking pace to 50 bp in December, and we still expect the final 25 bp hike in February to reach terminal.”

Some of the main moves in markets:

Stocks

• The S&P 500 fell 2.8 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 3.9 per cent
• The Dow Jones Industrial Average fell 2.1 per cent
• The MSCI World index fell 2.4 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.4 per cent
• The euro fell 0.5 per cent to US$0.9739
• The British pound fell 0.7 per cent to US$1.1080
• The Japanese yen fell 0.2 per cent to 145.36 per dollar

Cryptocurrencies

• Bitcoin fell 2.9 per cent to US$19,461.43
• Ether fell 2.7 per cent to US$1,327.55

Bonds

• The yield on 10-year Treasuries advanced six basis points to 3.89 per cent
• Germany’s 10-year yield advanced 11 basis points to 2.19 per cent
• Britain’s 10-year yield advanced seven basis points to 4.24 per cent

Commodities

• West Texas Intermediate crude rose 4.6 per cent to US$92.48 a barrel
• Gold futures fell 1 per cent to US$1,703 an ounce