Skeptics of Fed Pivot Vindicated as Stocks Sink on Jobs Report

The fast money refused to join the crowd betting the Federal Reserve was about to make a friendly shift in monetary policy. It proved a prescient bet after Friday’s jobs report.

The S&P 500 dropped more 1.5% at the open after data showed the American labor market remains resilient in the face of rising interest rates. That’s good news for hedge funds that, while stocks were staging the biggest two-day rally since 2020 earlier this week, reduced holdings on both the long and short side of their books, according to data compiled by JPMorgan Chase & Co.’s prime broker unit.

After a brutal third quarter, stocks rallied to start the week on growing speculation that the Fed’s efforts to combat inflation will soon take hold in the economy, allowing the central bank to slow the pace of future rate increases. The hiring data quickly quelled that talk.

“This discussion earlier this week was surreal to me around the Fed pivot,” said Rick Rieder, chief investment officer for global fixed income at BlackRock Inc., said on Bloomberg TV. “There is no pivot. The Fed has got to keep going.”