US stocks notched a weekly gain after a surprisingly strong jobs report alleviated recession fears but cleared the path for the Federal Reserve to raise rates sharply at its next meeting. 

The S&P 500 suffered a decline on Friday after falling as much as 1.1 per cent during the session. But the index and the Nasdaq 100 wrapped up their third straight week of gains, the longest winning streak since April. 

Treasuries sank, with the 10-year yield around 2.83 per cent, after climbing nearly nearly 26 basis points since Monday.

The strong jobs report on Friday validated the Fed’s view of a resilient economy that can withstand additional interest-rate hikes. Traders have now recalibrated expectations for Fed policy, with a hike of three-quarters of a percentage point the more likely scenario at the September meeting as the central bank battles inflation.

A handful of Fed officials this week reiterated the central bank’s resolve to bring down high prices. Among them is Fed St Louis President James Bullard, who has said he favors a strategy of front-loading big interest-rate hikes. That stance has likely strengthened after Friday’s job report, ruling out the possibility of a dovish pivot that Fed Chair Jerome Powell hinted at last week. 

“This jobs report is consistent with an inflationary boom,” said Neil Dutta, head of economics at Renaissance Macro Research. “The Fed has a lot more work to do and in an odd way, that the Fed needs to get more aggressive in pushing up rates, makes the hard-landing scenario more likely.”

Here’s what else Wall Street is saying about the jobs surprise:

Win Thin, global head of currency strategy at Brown Brothers Harriman & Co:

• “Odds of a 75 basis point move next month have shot up, as they should. We still get one more jobs report before the September FOMC but barring a disaster, I think 75 bp then is a done deal.”

Eric Theoret, global macro strategist at Manulife Investment Management:

• “For the Fed, this report confirms the need to continue tightening and also endorses much of this week’s Fedspeak that sought to jawbone rate expectations. For markets, the report may pose a challenge for rate-sensitive equities like tech which had recently been leading in terms of sector performance.”

Seema Shah, chief strategist at Principal Global Investors:

• “All the jobs lost during the pandemic have now been regained. But while that is positive news, markets will take today’s number as a timely reminder that there is significantly more Fed hiking still to come. Rates are going above 4 per cent -- today’s number should put to bed any doubters.”

Peter Boockvar, chief investment officer at Bleakley Financial Group:

• “This was a great number with the obvious big upside in hirings but when this is happening at the same time GDP is declining, it means productivity is plunging. Also, as the pace of firing is at the highest level in nine months, this pace of hiring is just not sustainable.”

Keith Lerner, co-chief investment officer at Truist Advisory Services:

• “Some of the conviction levels around recession are somewhat less. And I think that’s offsetting the other side of the equation which is, OK, that means the Fed will have to be more aggressive. So that’s why you’re netting this out to be a flat day because it really comes down to people questioning their confidence that we were in a recession, which was the primary reason why we were down.”

Corporate earnings, combined with thin liquidity that’s common in the summer, took the stock market on a ride this week. Many firms beat expectations and proved they could handle high inflation and a gloomy economic outlook. But investors have resumed shunning global stocks in favor of bonds, according to Bank of America Corp. strategists, who say it’s time to step back from US equities after July’s rally.

US-China tension also remained among the uncertainties clouding the outlook. China announced it would halt cooperation with the US in a number of areas -- including working-level talks on climate change and defense -- after US House Speaker Nancy Pelosi’s trip to Taiwan this week. China also sent warships across the Taiwan Strait’s median line, a day after likely firing missiles over the island.

West Texas Intermediate rose to near US$90 a barrel, but remains on track for its biggest weekly decline since April. Gold fell and Bitcoin gained.

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.2 per cent as of 4:02 p.m. New York time
• The Nasdaq 100 fell 0.8 per cent
• The Dow Jones Industrial Average rose 0.2 per cent
• The MSCI World index rose 0.3 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.7 per cent
• The euro fell 0.7 per cent to US$1.0178
• The British pound fell 0.8 per cent to US$1.2068
• The Japanese yen fell 1.6 per cent to 135.03 per dollar

Bonds

• The yield on 10-year Treasuries advanced 14 basis points to 2.83 per cent
• Germany’s 10-year yield advanced 15 basis points to 0.96 per cent
• Britain’s 10-year yield advanced 16 basis points to 2.05 per cent

Commodities

• West Texas Intermediate crude fell 0.2 per cent to US$88.36 a barrel
• Gold futures fell 0.9 per cent to US$1,791.10 an ounce