US stocks fell on Friday after a hotter-than-expected August jobs report led investors to increase their bets on a Federal Reserve interest rate hike.

The Dow Jones Industrial Average dropped around 0.7%, or roughly 380 points, while the S&P 500 declined 0.5% and the Nasdaq Composite slipped about 0.4%. The S&P 500 closed near 7,708, the Dow near 53,301, and the Nasdaq around 26,463.

The August payrolls report showed the US economy added 162,000 jobs last month, far above the 55,000 economists had forecast. The unemployment rate came in at 4.1%, in line with expectations, and July's figure was revised up by 43,000 jobs, turning positive for the month. The beat signaled that the labor market remains resilient, raising a key question on Wall Street: would the Fed use it as grounds to hike rates? For the central bank, the tension is straightforward: a stronger labor market can sustain consumer spending and demand, but it can also keep upward pressure on prices at a time when policymakers are still weighing whether inflation is firmly under control.

BREAKING: The US economy adds +162,000 jobs in August, well above expectations of +55,000. The unemployment rate was 4.1%, in-line with expectations of 4.1%. July's job number was also revised up by +43,000 jobs and is now positive for the month. The US job market nearly…

— The Kobeissi Letter (@KobeissiLetter), September 4, 2026 (X post)

According to CME Group data, traders pushed the probability of a September rate hike to roughly 60% following the report, a clear shift from where expectations stood earlier in the week. Treasury yields also rose as investors adjusted their rate expectations and priced in the possibility of tighter monetary policy. Rising yields tend to weigh on equities by making bonds relatively more attractive and by increasing borrowing costs for companies, which is why strong labor data can translate into stock losses even without any negative corporate news.

Fed Signals and What Comes Next

Fed Chairman Kevin Warsh has said he is not placing too much weight on any single report, and has suggested that wage data is less tied to inflation than some believe, which could limit how much the jobs number moves the needle for the central bank.

Some analysts argue that Friday's data alone may not be enough to lock in a hike. The next major data point will be the August Consumer Price Index, due September 11. The Personal Consumption Expenditures index, the Fed's preferred inflation gauge, is not expected until September 30 — after this month's Fed meeting, meaning policymakers may act before seeing that data.

Despite Friday's losses, the three major indexes remained close to their record highs. The relatively mild selloff may reflect some investor confidence that the economy can withstand a rate increase. Jobs reports are also subject to revisions, and some investors may be waiting to see whether the August figure holds before making major moves.

Lululemon Weighs on Markets

Away from the macro picture, Lululemon was the biggest individual stock story of the day. Shares fell around 16% after the company cut its revenue and profit guidance and reported a decline in second-quarter revenue. There were no other major earnings reports scheduled for Friday.

Source: CoinCentral