(Bloomberg) — US stocks dropped as investors grappled with continued evidence of strength in the labor market, which could keep the Federal Reserve firmly on its path of rate hikes. Treasury yields rose and the dollar added to gains.
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The S&P 500 and the Nasdaq 100 came off session lows after S&P Global’s December US services purchasing managers’ index data added to signs that the economy is cooling. News that Russian President Vladimir Putin ordered a temporary cease-fire in Ukraine over Orthodox Christmas on Friday and Saturday hasn’t seemed to move markets yet.
US stocks started Thursday’s session lower after hiring numbers surpassed estimates in a private payrolls report and new claims for unemployment benefits unexpectedly fell last week. Together, the data suggest resiliency in the labor market that could lead to higher wages and keep the Fed aggressive.
The Fed has indicated that tight labor conditions give it room to keep at its battle against rising prices. At the same time, officials remain concerned that financial conditions could get too loose to effectively crimp economic growth, even after the Fed embarked on the most aggressive tightening campaign in decades.
“We always say don’t fight the Fed when there are easy monetary conditions. We have to follow that sage advice when there are tightening financial conditions,” Kristen Bitterly of Citigroup Global Markets Inc. said on Bloomberg Television. “All this data we are getting is telling us that they are going to continue on this tightening path.”
Atlanta Fed President Raphael Bostic also bruised sentiment on Thursday after he said the central bank still has “much work to do” to tame inflation. He adds to a chorus of hawkish Fed officials this week. Minneapolis Fed President Neel Kashkari said Wednesday he expects rates to rise as high as 5.4%, while Kansas City Fed’s Esther George said she favors a rise above 5%.
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Swap rates linked to individual Fed decisions jumped and now suggest a peak in the overnight effective rate of close to 5.05% in…
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