Jacquelyn Martin/AP
After the red-hot September jobs report, markets are pricing in higher odds for the Federal Reserve to hike interest rates at the November meeting.
The Labor Department reported Friday that the economy added 336,000 new jobs, above consensus estimates for 170,000. It also showed wage growth slowed slightly, and unemployment held at 3.8%.
The day before the jobs report, traders saw 20.1% odds the central bank would make a 25 basis point increase to the federal funds rates, according to CME's FedWatch Tool. That jumped to 29.3% after the latest jobs reading.
The good news of a robust job market isn't good for markets necessarily, since it gives the Fed a greenlight to push harder with aggressive monetary policy to keep fighting inflation.
The bond market has gone haywire over the last several days, extending losses to make the rout in Treasurys among the worst in markets history. The 10-year Treasury yield hovered at 4.782% after midday on Friday, near 16-year highs. Investors are now staring down the prospect of higher for longer interest rates.
"All of this will provide the Fed with the idea that stable and higher for longer is the recipe for monetary policy," said Steve Wyett, chief investment strategist at BOK Financial. "Bond markets are reflecting an outlook for better growth as rates move higher and equities are digesting an environment where earnings might be better, but higher rates are a headwind to valuation."
Bank of America strategists, for their part, warned that stocks have room to fall further before the Fed pulls back on interest rates.
"Higher-for-longer = hard landing," the bank's strategists warned in a note Friday.
