By Isabel Wang

A stock market rally that followed a healthy gain in U.S. employment in August gave way to losses on Friday with the three major indexes closing at their lowest levels since late July, as Wall Street assessed one of the last major economic reports the Federal Reserve will see before it raises its benchmark interest rate at its upcoming September meeting.

U.S. stocks recorded a loss for the third week in a row on Friday after Russia's Gazprom said it will hold off on reopening the Nord Stream pipeline to Europe The $Dow Jones Industrial Average(.DJI.US)$ finished 337.98 points lower, or 1.1%, to 31,318.44, after rising as much as 370 points at its session high. The $Nasdaq Composite Index(.IXIC.US)$ slipped 154.26, or 1.3%, to end at 11,630.86, recording its longest losing streak in three years. The $S&P 500 index(.SPX.US)$ was off 42.59 points, or 1.1%, finishing at 3,924.26.

The economy added 315,000 new jobs in August, the Labor Department said Friday, roughly in line with expectations of 318,000 jobs from a survey of economists by The Wall Street Journal, and well off the 526,000 gains in July.

Today's jobs report seems to be kind of right down the middle. I guess in that sense, by not being bad news, it's good news. But it just didn't seem like it was a big surprise to anybody, given that I would expect that the Fed is going to stand the course that they've been staying on.

-said Melissa Brown, head of global research at Qontigo, an investment management firm.

The unemployment rate, meanwhile, rose to 3.7% from 3.5%, largely due to a rising labor-force participation rate. That's the highest jobless rate in six months.

It (nonfarm payrolls) ticked down from July but is not super concerning. I think the most positive part about this was that more people entered the labor force. The labor participation rate has been stuck below prepandemic levels for a long time, and it's still slightly below -prepandemic levels from a percentage standpoint, but the number of people working is now up above where it was before the pandemic. That is a very welcome sign.

-said Liz Young, head of investment strategy at SoFi.

Federal Reserve Chair Powell said in his Jackson Hole address last Friday that the central bank will continue its battle to get the annual inflation rate back to its 2% target "until the job is done" despite the "unfortunate cost" to bring some pain to households and businesses.

Investors have been eyeing the August jobs report for further clues as to how much and for how long the Fed will raise interest rates. However, according to Young, there's no signs for the central bank to back off its policy-tightening as investors are simply "grasping at straws, trying to find something cooling in this report."

There are concerns that the labor market is too hot and if that continues to be the case, they (the Fed) will continue on this hiking path, and the hawkishness that they've been sending from Jackson Hole and before that, is not going to change until inflation really does come down or until the labor market shows signs of real weakness. If average weekly hours go down again in September, or if the labor-force participation rate ticks back down, then those are real signs of cooling.

-Young told MarketWatch on Friday.

The government reported Thursday that the number of people who applied for unemployment benefits at the end of August fell to a nine-week low of 232,000, showing no sign that a slowing U.S. economy is triggering widespread layoffs.

At least one economists has projected the U.S. is heading for a "whopper" of a recession next year as inflation is going to stay high through 2024. However, according to Young, the jobs data quelled the worries that it may have had in recent days about recession.

We've never gone into a recession with a labor market that is strong. I think the market is taking this as a signal that recession is not imminent, and it's not something to fear in the next quarter or two.

-said Young.

Trading across other financial markets was choppy after the release of the data. Two, 10- and 30-year Treasury yields moved lower on Friday. The yield on the 2-year Treasury fell to 3.398%, after hitting a fresh 15-year high on Thursday. The yield on the 10-year Treasury was 3.190%, down from 3.264% Thursday afternoon.

Gold prices for December delivery rose $13.30, or 0.8%, to settle at $1,722 .60 per ounce on Comex. The ICE U.S. Dollar Index , a gauge of the dollar's strength against a basket of rival currencies, was down 0.1%, as rising bond yields helped push the U.S. dollar to fresh multidecade highs a day earlier.

For the week, the S&P 500 shed 3.3%, the Dow lost 3% and the Nasdaq booked a 5.8% weekly decline, according to Dow Jones Market Data.

-Isabel Wang