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Stocks fall from record highs after strong jobs report dampens hope of a Fed rate cut

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The market's down in spite of a strong jobs report—5 experts explain

Stocks fell from all-time highs on Friday after the release of stronger jobs data dampened hope for easier Federal Reserve monetary policy.

The Dow Jones Industrial Average pulled back 43.88 points to 26,922.12, snapping a four-day winning streak. T slipped 0.2% to 2,990.41 and ended a five-day winning streak. The Nasdaq Composite fell for the first time in seven sessions, slipping 0.1% to 8,161.79. Earlier in the session, the Dow dropped as much as 232.67 points, while the S&P 500 and Nasdaq slid nearly 1% each.

Despite Friday's losses, the major indexes posted solid weekly gains. The Dow and S&P 500 rose more than 1% each this week while the Nasdaq gained nearly 2%. Stocks also posted all-time highs on Wednesday.

"The jobs number was solid," said Gregory Faranello, head of U.S. rates at Amerivet Securities. "The real theme now will be shifting very quickly to what the number means in the context of what we're pricing in for the Fed in July."

The U.S. economy added 224,000 jobs in June. Economists had forecast the U.S. added 165,000 jobs in June, after a stunningly low 75,000 jobs were created in May, according to Dow Jones.

Treasury yields jumped on the data. The benchmark 10-year yield traded at 2.05%. The 2-year rate rose to 1.87%. Bank shares got a lift from the higher rates. Citigroup, Bank of America, J.P. Morgan Chase and Wells Fargo all traded higher.

Gold futures dropped 1.4% to settle at $1,400.10 per ounce. The dollar rose 0.6% against a basket of currencies.

"Markets never make it easy. We've had a rate-cut trade in place for a while now. That is buy gold, buy bonds. But these things never go on a straight line," said Erik Bregar, head of FX strategy at the Exchange Bank of Canada.

Bregar added, however, he does not think the strong jobs data is enough to keep the Fed from cutting rates. "If you look at bond markets around the world, they're worried about something," he said. "I don't think central banks have the guts to go against the bond market."

At times of market turbulence, investors tend to flee to assets expected to either retain or increase in value — such as gold, the Japanese yen and government bonds.
Drew Angerer | Getty Images

Investors were betting heavily on the Fed cutting rates later this month heading into Friday's session. CME Group's FedWatch tool showed expectations for a rate cut in July were at 100%. Last month, the Fed said it would "act as appropriate" to maintain the current U.S. economic expansion, which is the longest in history.

After the data was released, those odds fell to about 94%.

"We're seeing a lot of repricing from the market," said Lindsay Bernum, investor at Smith Capital Partners. "I don't think they have to bring a 25 basis-point rate cut based on this report, but we still need to get through the data for the rest of the month."

In corporate news, Samsung warned its second-quarter earnings likely fell 56% on a year-over-year basis, citing weak demand for memory chips. The warning pressured semiconductor stocks like Broadcom, which fell 0.8%. Micron Technology also lost 0.4%.

—CNBC's Spriha Srivastava contributed to this report.

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Key Points
  • The June jobs report comes at a tentative time for the economy, and it may provide the signal the Fed needs to cut interest rates at the end of the month.
  • Economists expect 165,000 jobs were added in June, but they also see a slowing trend in job creation, due partly to the fact the U.S. is running out of workers but also because the economy is feeling the impact of trade wars.
  • ADP's private sector report of just 102,000 June private sector jobs dampened expectations for the government report, which will be released at 8:30 a.m. ET Friday.