Strong Economy Weakens Stocks as Interest Rates Loom

The US economy's strong jobs report for August has left investors worried about the stock market. Employers added 162,000 jobs, nearly triple the expected 56,000, and unemployment remained at 4.1%. The S&P 500 fell 0.4%, the Dow lost 0.5%, and the Nasdaq slipped 0.3%.

The strong labor market gives the Federal Reserve more freedom to raise interest rates. Chair Kevin Warsh warned policymakers that they still have 'work to do' unless inflation cools sufficiently. The jobs report changed expectations, with traders briefly pushing the probability of a September rate hike to around 65%, from roughly 55% before payrolls landed.

The two-year Treasury yield jumped to as high as 4.42%, while the 10-year yield briefly topped 4.81%. Higher yields increase borrowing costs for companies and reduce the present value of future corporate profits, particularly affecting growth stocks.