U.S. stock markets pulled back Friday after a weeks-long advance, as investors fretted that positive jobs data would dampen the Fed's appetite for rate cuts. (Richard Drew/AP)

U.S. markets came off all-time highs on Friday as investors interpreted strong employment data as an argument against their much hoped-for interest rate cuts.

All three indices closed Friday in the red after having ascended to record heights when they closed going into Independence Day.

The Dow Jones industrial average cut steep, early losses on Friday to finish the day at a 26,992, a 44-point decline , or 0.16 percent, snapping a four-day win streak to start second half of the year. Bellwether 3M, drugmaker Merck and Johnson & Johnson were the big drags as 18 of the 30 blue chips were in negative territory. Goldman Sachs, UnitedHealth and footwear-maker Nike were the big gainers.

The Standard & Poor’s 500-stock index rallied from early lows to finish 5 points down, a decline of 0.18 percent. The broad market closed at 2,990 after three successive new closing highs earlier this week. Materials and health care were the big weights. The tech-heavy Nasdaq Composite finished Friday with a drop of 8 points, down 0.10 percent. The Nasdaq closed at 8,161.

The early session drop-offs came on the heels of better-than-expected employment news. The U.S. added 224,000 jobs in June, the U.S. Labor Department reported Friday, marking a big turnaround from the lackluster 72,000 job gains reported in May. The unemployment rate edged up slightly, to 3.7 percent.

[Hiring rebounds as U.S. economy adds 224,000 jobs in June; unemployment rate at 3.7 percent]

“It is remarkable that companies continue to hire with abandon this late in the economic cycle, as June marks the month where a full 10 years have occurred since the end of the Great Recession,” said economist Chris Rupkey of MUFG. “The economic outlook must be bright for the second half of 2019, otherwise companies would never risk hiring additional help to produce their goods and sell their services.

"The million-dollar question is whether the economy is solid enough to keep the Federal Reserve on the sidelines in July after [Fed Chairman Jerome] Powell virtually assured the markets that rate cuts were coming. The president still wants rate cuts to ensure his reelection.”

Kristina Hooper, chief global market strategist with Invesco, said Friday’s sell-off was an overreaction to concerns that the Fed may not cut rates after the blistering jobs report.

“The key metric that the Fed will look to is average hourly earnings, which rose by 3.1 percent over the past 12 months,” Hooper said. “While this is the 11th straight month that that year-over-year wage gains were at or above 3 percent, this is relatively subdued for this far in the recovery. That means the Fed could still not be afraid of cutting rates in July.”

The Federal Reserve Board will meet at the end of July to decide what will happen to interest rates in light of the nation’s longest economic expansion on record, now in its 10th year. Investors have bet heavily on a rate cut, pushing stocks to new highs.

But in the upside-down world of easy-money and Fed intervention, a great jobs number may be good news for main street and bad news for Wall Street. The Fed may see an economy strong enough to stand on its own without rate reduction.

“A jump in jobs leads to a slump in stocks,” said Sam Stovall of CFRA Research. “With the June payrolls report coming in higher than expected, the need for the Fed to begin a rate-cutting cycle has been reduced.”

U.S. stocks have been on a tear, riding the momentum of their best June in years into July. The three major indexes soared to record highs on Wednesday. The Dow wrapped up its best first half since 1999. The S&P 500 saw its best first half since 1997.

The Dow is up more than 15 percent for the year. The broader S&P is up 19 percent in the first six months, and the Nasdaq has surged around 23 percent as the summer trading season gets into full swing.