U.S. stocks edged lower and bond yields rose Friday afternoon as Wall Street closed in on a downbeat finish to an otherwise solid week of gains for the broader market.
Stocks hovered slightly lower after nearly recovering from an early slide that briefly had the Dow Jones Industrial Average down more than 230 points.
Investors were rattled by government data showing an unexpected burst of hiring in June that sowed doubts on Wall Street about whether the Federal Reserve will decide to lower interest rates later this month.
The small decline had the market on track to snap a six-day winning streak for the S&P 500, though the benchmark index was also likely to end the week with a gain. The market kicked off July with three straight all-time highs this week.
The Labor Department said that employers added a robust 224,000 jobs in June. The pickup in hiring could give the central bank pause later this month when its policymakers are scheduled to meet and consider cutting the Fed's benchmark interest rate.
Most investors have anticipated a Fed rate cut this month and perhaps one or two additional cuts later in the year after the central bank signaled in June that it was prepared to lower interest rates to keep the economy growing in the face of slowing global growth and the fallout from U.S. trade conflicts.
"What the markets are really trying to figure out now, relative to the Fed, is on a stronger (jobs) report the question becomes, will they cut rates?" said Darrell Cronk, chief investment officer for Wells Fargo Wealth and Investment Management. "When you get this kind of holiday shortened weeks and light trading volume any kind of movement tends to be over accentuated."
The S&P 500 was down 0.2% as of 3:20 p.m. Eastern time. The Dow dropped 54 points, or 0.2%, to 26,911. The tech-heavy Nasdaq composite slid 0.1%. The Russell 2000 index of smaller company stocks was up 0.1%.
Trading volume was light as U.S. markets reopened following the Independence Day holiday.
Major stock indexes in Europe also fell.
Traders were betting Friday that a rate cut in late July may be less likely now. Investors sold bonds, sending the yield in the 10-year Treasury note up to 2.05% from 1.95% late Wednesday, a big move. Bond yields have fallen through much of June as investors' expectations of a Fed rate cut increased.
The jump in yields helped boost financial stocks, which led the gainers. Higher bond yields push up interest rates that banks charge on mortgages and other loans. Jefferies Financial Group rose 2.7%.
Health care, industrial, technology and consumer staples stocks accounted for much of the selling. Regeneron Pharmaceuticals fell 3.3%, Rockwell Automation dropped 3%, Nvidia slid 1.8% and Kellogg lost 1.4%.
Shares in video game company Electronic Arts slid 4.9%, one of the biggest losers in the S&P 500.
Traders bid up shares in NorthStar Realty after the real estate investment trust agreed to be acquired by AXA Investment Managers in a deal expected to close later this year. NorthStar shares rose 2.8%.
A slight easing of trade tensions between the U.S. and China helped spur the gains earlier this week. Both nations have agreed to refrain from new tariffs while they open a new round of negotiations. The development relieved some pressure on the market, though the trade war still looms over global economic growth.
White House economic adviser Larry Kudlow told reporters Thursday he expected to announce new negotiations soon. Still, forecasters warn the truce is fragile because the two sides still face the disputes that caused talks to break down in May.
Besides any developments on trade, the next major catalyst for the market will likely be the flood of earnings reports that companies are set to release in coming weeks as the second quarter reporting season begins.
Expectations are generally low, and this could be the first time in three years that S&P 500 companies report a back-to-back decline in overall earnings, according to FactSet.
At the end of the month the Federal Reserve will hold its next meeting of policymakers, after which the panel will reveal whether it has decided to cut rates for the first time since the Great Recession in 2008 in the face of slowing economic momentum around the world.
Last year, Fed officials raised rates four times, in part to stave off the risk of high inflation and in part to try to ensure that they would have room to cut rates if the economy stumbled.
On Friday, the Fed reiterated that it would act as necessary sustain the economic expansion, while noting that most Fed officials have lowered their expectations for the course of rates. The Fed's statement came in its semiannual report on monetary policy.
The Fed Funds futures, a barometer of whether investors are expecting the Fed to cut rates or not, has been showing a strong chance of a rate cut this month and another later this year, with an outside change of a third.
"The jobs report today probably takes off the table the likelihood of a third rate cut," Cronk said. "So now the narrative is, 'is it one or is it two?'"