US stocks slipped on Friday as investors ramped up bets on a Federal Reserve rate hike following a surprisingly strong August jobs report.

The Dow Jones Industrial Average (^DJI) fell 0.5%, and the S&P 500 (^GSPC) declined 0.3% after the two benchmark indexes posted their best day in nearly a month. The tech-heavy Nasdaq Composite (^IXIC) dipped 0.1%. The pullback underscores how sensitive markets have become to labor data this year: with inflation still running above the Fed's target, each jobs print has become a key input for pricing the central bank's next move.

August payrolls blow past expectations

The August jobs report showed 162,000 jobs added in the previous month, blowing past economists' expectations of 55,000. The unemployment rate held steady at 4.1%, and average hourly earnings grew 0.3%, in line with expectations. Heading into the release, economists surveyed by Bloomberg had expected the unemployment rate to hold at 4.1%, with US employers forecast to add 55,000 jobs, bouncing back from July's surprise job losses.

The blowout number offered a strong countersignal to the economic data released earlier in the week, which suggested the labor market remained stuck in a pattern of sluggish but stable growth — a "low hire, low fire" environment marked by relatively sluggish hiring but limited layoffs.

The question on Wall Street was whether August's strong jobs number would be enough to tilt the Fed toward hiking interest rates. Following the report, the probability of a September rate hike tracked by CME Group's FedWatch tool jumped to roughly 60%, up from a 50-50 split the day before. Friday's report is a new data point for the Federal Reserve ahead of its Sept. 16-17 meeting. The central bank has been weighing whether to hike rates to combat persistently hot inflation, but doing so risks further slowing a relatively sluggish job market.

Bond yields jumped in reaction to the data: the 10-year yield (^TNX) increased by 1 basis point to 4.77%, while the 30-year yield (^TYX) held at 5.24%. Higher yields tend to pressure equities by making bonds relatively more attractive and raising borrowing costs, which helps explain why rate-hike expectations weighed on stocks even amid good news on hiring.

Trump threatens trade embargoes unless the Fed cuts rates

Yahoo Finance's Ben Werschkul reports: Touting Friday's blowout jobs number, President Trump used the opportunity to weigh in on a new spike in the US trade deficit, threatening embargoes on unfavored countries. Trump posted on Truth Social, in what appeared to be a directive to the Federal Reserve, to "LOWER THE RATE OR I'LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT."

Trump, who has long voiced a desire for lower interest rates, asserted that an embargo could be "BETTER THAN TARIFFS" and said "the Fed Board, with its great new leader, must get smart." Pressure on the central bank from the president isn't new, but the threat of a trade embargo is. Embargoes would be a new level of disruption for the global economy, and the president likely has the legal authority to follow through.

Tesla shares sink as NHTSA begins investigation into Cybercab

Tesla (TSLA) shares moved sharply lower Friday morning, pulling back roughly 6%, after reports that the National Highway Traffic Safety Administration is investigating whether the company's new Cybercab model complies with regulatory requirements. The probe is an early test of how US auto safety rules — written around vehicles with steering wheels and pedals — apply to purpose-built robotaxis, a question that extends beyond Tesla to the broader autonomous vehicle industry.

The investigation formally began on Thursday, per the NHTSA announcement — the same day Tesla held its official launch event for the Cybercab in Austin, where the company said customers will be able to book rides beginning Friday evening.

Tesla said it certified the initial small deployment of vehicles — which lack a steering wheel and brakes, among other typical automobile features — with the US Federal Motor Vehicle Safety Standards (FMVSS). The NHTSA has said its investigation "will examine the process and technical data on which Tesla relied when certifying the Cybercab and related issues," alongside "the extent to which Tesla's certification depended on determinations that certain FMVSS are inapplicable to the Cybercab."

Lululemon stock sinks after cutting forecast as revenue declines

Lululemon (LULU) stock dropped as much as 20% in extended trading on Friday and was down 16% in the session after the athleisure apparel company cut its revenue and profit guidance. Second quarter fiscal 2026 revenue decreased 4% to $2.4 billion, with comparable sales down 9%.

"While we continue to navigate some challenging dynamics, we are taking a prudent approach with our revised full-year outlook," said Meghan Frank, interim co-CEO and CFO.

For 2026, the company now expects net revenue of $10.35 billion to $10.5 billion, representing a decline of 5% to 7%. Adjusted earnings per share are expected in the range of $9.48 to $9.73 for the year. The disappointing results come as Nike veteran Heidi O'Neill prepares to take over as CEO next week, meaning she will inherit the lowered outlook as one of her first challenges. There are no other notable earnings reports scheduled for Friday.

US retail diesel hits record as Hormuz, Russia crises stretch on

Diesel prices hit a record high on Friday as the wars in the Middle East and Russia disrupt energy flows. The move carries consequences for the global economy, given diesel's wide range of uses, from home heating and transportation to heavy construction and farming equipment. Because diesel fuels the trucking and agriculture sectors, sustained record prices feed into shipping and food costs, adding another layer to the inflation picture the Fed is fighting.

Bloomberg reports: The widely used fuel climbed to a nationwide average of $5.85 a gallon at the pump on Thursday, according to the American Automobile Association. The advance pushed the price above the former peak set in June 2022, as a crunch on global supplies continues to unfold just ahead of peak-demand season.

In the Middle East, the US-Iran war has disrupted flows through the Strait of Hormuz, with TotalEnergies SE's head Patrick Pouyanne saying in August there wasn't a "single tanker of products" moving out of the waterway. At the same time, Russia extended a ban on diesel exports through September after a wave of Ukrainian drone strikes on the country's refineries.

US dollar slumps to start September as yen surges on rate bets

Bloomberg reports: The dollar slumped to start September as traders cut bets on a Federal Reserve rate hike this month and a surging yen rippled across global currency markets. The Bloomberg Dollar Spot Index was on track to wrap up the week 0.7% lower after touching its lowest level since May on Thursday. Ahead of the jobs report, investors saw roughly even odds of a rate hike at the central bank's Sept. 16 decision after Fed Governor Christopher Waller pointed to progress on inflation, adding to pressure on the greenback amid lingering concerns over the US fiscal outlook.

In Japan, the yen is on track for its best week since July, gaining 2.7% against the dollar. The move has been fueled by expectations that the Bank of Japan may raise its benchmark rate by a quarter point this month, while leaving the door open to faster hikes thereafter. A stronger yen matters beyond currency markets: it affects the pricing of Japanese exports and has historically rippled into global carry trades.

"The dollar took a step back this week as Fed speak leaned dovish and a yen rally spilled over to the broader USD complex," said Noah Buffam, strategist at CIBC Capital Markets.

Is AI displacing workers? The data says no

Yahoo Finance's Jake Conley reports: Despite widespread worries that AI would quickly destabilize and displace the labor force, data suggests this may not be the case, as employers opt for adaptation rather than layoffs. Planned job cuts in the US labor market fell in the first eight months of 2026 to the lowest level in four years, according to data released Thursday by outplacement firm Challenger, Gray & Christmas, while hiring plans through the same period reached their highest level since 2023.

Put simply, "There is still no evidence that AI is replacing workers," Apollo Global chief economist Torsten Sløk said Thursday, a sign that AI's impact on the economy may be shaping up differently than expected. (Disclosure: Yahoo is a portfolio company of funds managed by affiliates of Apollo Global Management.)

Job cut announcements in August rose from July, but the total so far this year is down 41% compared to 2025. Even the layoffs announced in August weren't primarily driven by AI; employers cited other reasons beyond AI as the primary driver of job cuts for the first time in six months.

Fed Chairman Kevin Warsh changes the rules for trading the jobs report

Wall Street obsesses over payroll numbers. Federal Reserve Chairman Kevin Warsh may barely flinch — one of the clearest lessons from Warsh's first Jackson Hole speech as chair one week ago. He spent much of it arguing against the Fed guiding investors toward its next rate decision, then laid out a detailed framework for how he reads inflation, jobs, demand, corporate activity, and markets.

His current diagnosis leans hawkish: jobs look solid, inflation pressures remain too high, and broad financial conditions do not look restrictive. Every Fed chair watches data and markets. Warsh's distinction is that he wants to say less about the future rate path and make markets do more of the interpreting — part of his push to have markets guide the Fed rather than simply echo it. That approach leaves the Sept. 16-17 meeting unusually open to interpretation, with Friday's jobs report now the latest, but not necessarily decisive, input.

Elsewhere overnight

Top stories from overnight included: Volkswagen's plan for 50,000 more job cuts amid the biggest overhaul in its history; Fed Governor Waller's plea to "give disinflation a chance"; Lululemon's guidance cut; Asian shares climbing ahead of US jobs data as Waller's comments soothed bonds; and Oura's filing to go public.

Source: Yahoo Finance