Jobs Report Strength: Fed Hawks Circle Higher
7% in May while employers added 272,000 jobs — numbers that would have been celebrated eighteen months ago.
Jobs Report Strength: Fed Hawks Circle Higher
The unemployment rate dropped to 3.7% in May while employers added 272,000 jobs — numbers that would have been celebrated eighteen months ago. Friday, they triggered the largest tech selloff in two years. The Nasdaq 100 fell 5%, wiping $1.8 trillion from market capitalisation in a single session. This is what happens when good news becomes bad news.
The mechanism is straightforward. Strong employment data means the Federal Reserve has room to raise interest rates without breaking the labour market. Bond yields jumped immediately — the 10-year Treasury climbed to 4.8%, its highest level since November. Higher rates make future cash flows worth less today, which explains why growth stocks got hammered. Nvidia fell 8%. Tesla dropped 6%. The companies that thrived in the zero-rate environment suddenly looked expensive.
What the market missed in its panic was the wage component. Average hourly earnings rose just 0.2% month-over-month, well below the 0.4% economists expected. Workers are finding jobs, but they're not getting the raises that would fuel persistent inflation. This should have been the nuance that kept the selloff contained. Instead, algorithms read "strong jobs" and sold everything with a high price-to-earnings ratio.
Bitcoin fell 4% as momentum traders abandoned crypto for what they perceive as the next rotation trade. One analyst captured it perfectly: "The AI trade is sucking the blood out of crypto." Attention is finite in markets. When traders chase the new narrative, the old one gets liquidated.
The Federal Reserve now faces a different calculation than it did six months ago. KPMG's chief economist Diane Swonk noted that service sector inflation remains sticky, and Friday's jobs data removes the urgency to cut rates. The market is pricing a 40% chance of a rate hike by September — the first increase since 2023.
For retail investors who bought the dip for two years running, Friday tested their resolve. Goldman Sachs sees the selloff as a buying opportunity, maintaining their S&P 500 target of 8,000 by year-end. They may be right. But they're also betting that this economy can handle higher rates without cracking — a wager that hasn't been stress-tested since the pre-pandemic era.
The European Central Bank is watching closely. Friday's dollar rally — its strongest day in two months — puts pressure on European exports just as the ECB considers its own rate increases to combat persistent inflation.
The jobs report revealed an economy that refuses to slow down on schedule. Whether that's strength or stubbornness depends entirely on what the Fed does next.
