Sometimes, good news is bad news.

A stronger-than-expected jobs report hit stocks and short-term bonds on Friday, with some investors now betting the Federal Reserve is more likely to increase interest rates this month.

Friday's report showed that the U.S. economy added 162,000 jobs in August. That figure was about three times what economists expected, and a sharp increase from the revised 21,000 job gain for July.

Investors are anxious over whether the Fed will lift rates on Sept. 16. Officials have made clear that inflation data will play the biggest role in their decision. Investors now see a 60% chance that the Fed will hike the rate this month, up from 52% before the report's release.

"Today's strong jobs report is the good news nobody asked for," said Peter Graf, chief investment officer at Amova Asset Management Americas. "It takes away the Fed's most credible excuse for not raising rates in September."

The Dow Jones Industrial Average dropped 0.5%, or around 272 points. The S&P 500 fell 0.4%, while the Nasdaq composite was 0.3% lower.

The U.S. 2 -year Treasury yield, which moves closely in line with benchmark rate expectations, rose to 4.379% from 4.332% a day earlier.

In a reminder of the inflation pressure facing the Fed, diesel prices hit a new all-time high of $5.85 a gallon on Friday, surpassing their previous record from 2022.

Another pressure the Fed faces is political. After Friday's report, President Trump took to social-media to encourage the central bank to lower rates. "Lower the interest rates because the U.S.A. is a much stronger credit than it was just a short time ago!" he wrote.

The president and stock investors appear to share concern that rates are about to go higher, posing a challenge to economic growth. For now, growth remains strong, and huge corporate profits have helped power the S&P 500 to a 13% gain year-to-date.

UBS Group economists now expect two rate hikes this year, in September and December, they wrote to clients Friday.

S&P 500 sectors that are sensitive to the strength of the economy, such as consumer discretionary and real estate, underperformed on Friday.

Lululemon Athletica was the S&P 500's worst performer, tumbling 17% after the activewear retailer posted declining sales and cut its outlook.

Chip makers advanced, with Sandisk, Micron Technology, and Advanced Micro Devices finishing among the day's top performers.