U.S. stocks closed lower across the board on Friday, with Treasury yields climbing after the release of employment figures, pushing the 2-year yield to its highest level since January 2025.

According to the CME FedWatch tool, federal funds futures traders now price a 58% probability of a rate hike at the Federal Reserve's meeting in two weeks, up from 49.4% the prior day, signaling further escalation in market expectations for tighter policy.

The S&P 500 slipped 0.38% to 7,718.60 points, while the Nasdaq Composite eased 0.29% to 26,506.99 points. The Dow Jones Industrial Average dropped 271.86 points, or 0.51%, closing at 53,414.25 points.

The so-called Magnificent Seven stocks were mixed, with Meta Platforms rising 1.00%, Nvidia gaining 0.84%, Amazon falling 0.15%, Google down 1.05%, Microsoft dropping 2.04%, Apple sliding 2.51%, and Tesla tumbling 5.92%.

The Philadelphia Semiconductor Index surged more than 3%, with the memory sector rallying sharply. SanDisk jumped over 11%, SK Hynix climbed more than 8%, Seagate Technology fell over 6%, Western Digital advanced more than 5%, and Micron Technology gained over 6%. Optical communications stocks also moved higher, with Marvell Technology up more than 7%, Coherent gaining over 6%, Corning rising more than 5%, and Lumentum advancing 4%.

Nonfarm payrolls increased by 162,000 in August, far exceeding the 53,000 forecast from economists surveyed by Dow Jones. The unemployment rate held steady at 4.1%, in line with market expectations. In addition to the robust August jobs figure, both June and July employment data were revised upward.

Treasury yields rose following the jobs report, with the 2-year yield hitting a fresh high since January 2025. The CME FedWatch tool showed federal funds futures traders pricing a 58% chance of a rate hike at the central bank's meeting in two weeks, up from 49.4% a day earlier, reflecting heightened expectations for a move.

Bradford Smith, a portfolio manager at Janus Henderson, commented: "The August jobs report was very strong, reflecting a significant increase in labor data volatility while slightly raising the odds of a September rate hike." He added that the upcoming policy tug-of-war "will be highly dependent on incoming inflation data."

"Following Chair Warsh's hawkish signals at the Jackson Hole meeting last week, the Fed has formed a clear bias: if upcoming data fails to show more progress on inflation, it will take rate hike action," Smith noted.

Earlier in the week, U.S. stocks had posted gains on Thursday, supported by remarks from Federal Reserve Governor Christopher Waller that pulled Treasury yields lower. Waller said he is "inclined to support" holding the benchmark rate at its current target range of 3.5% to 3.75% at the September 15-16 policy meeting.

For the full week, the Dow fell 0.3%, while the S&P 500 gained 0.1% and the Nasdaq Composite rose 0.4%.