Today's Stock Market: Dow Falls 600 Points Due to Weak Jobs Data Amid Global Sell-Off
Today's Stock Market: Dow Falls 600 Points Due to Weak Jobs Data Amid Global Sell-Off
Stocks plummeted on Friday due to concerns that the U.S. economy might falter under the strain of high interest rates designed to control inflation.
The S&P 500 dropped 1.8%, marking its first consecutive loss of at least 1% since April. The Dow Jones Industrial Average declined by 610 points or 1.5%, and the Nasdaq composite decreased by 2.4% as a global stock sell-off circled back to Wall Street.
A report revealed that U.S. employer hiring slowed significantly more than economists anticipated, causing market panic and leading to sharp declines in stock prices and bond yields. This followed a series of disappointing economic reports from the previous day, including a worsening situation in U.S. manufacturing, which has been heavily impacted by high interest rates.
Just days earlier, U.S. stock indexes saw their best performance months after Federal Reserve Chair Jerome Powell suggested that inflation had slowed enough to potentially justify rate cuts in September.
However, there are growing concerns that the Federal Reserve may have maintained its main interest rate at a two-decade high for too long. A rate cut would make borrowing cheaper for households and businesses, stimulating the economy, but its full effects could take months to manifest.
“The Fed is seizing defeat from the jaws of victory,” said Brian Jacobsen, chief economist at Annex Wealth Management. “Economic momentum has slowed so much that a rate cut in September will be too little and too late. They’ll have to do something bigger than” the traditional quarter-point cut “to avert a recession.”
Traders are now betting on a 70% chance that the Fed will cut its main interest rate by half a percentage point in September, according to CME Group data. This is despite Powell's statement on Wednesday that such a significant reduction is “not something we’re thinking about right now.”
The U.S. economy continues to grow, and a recession is not certain. The Fed has emphasized the delicate balance it is trying to maintain since it began sharply raising rates in March 2022: being too aggressive could stifle the economy, but being too lenient could exacerbate inflation.
While Powell did not declare victory on either the jobs or inflation fronts on Wednesday, he indicated that the Fed has ample room to respond to any weakness in the job market after significantly raising its main rate.
“Certainly today’s job data feeds the weakening economy narrative, but I believe the market is overreacting at this point and pricing too much in on rate cuts at this stage,” said Nate Thooft, senior portfolio manager at Manulife Investment Management. “Yes, the economy is weakening, but I am not convinced there is enough evidence that the data so far is a death knell for the economy.”
U.S. stocks appeared poised for losses on Friday even before the disappointing jobs report.
Several major technology companies reported underwhelming profits, continuing a mostly disappointing trend that began last week with Tesla and Alphabet’s results.
Amazon fell 8.8% after reporting weaker-than-expected revenue for the latest quarter and issuing a forecast for operating profit that fell short of analysts’ expectations.
Intel dropped even more, 26.1%, marking its worst day in 50 years, after its quarterly profit fell short of forecasts. The chip company also suspended its dividend payment and forecast a loss for the third quarter, when analysts had expected a profit.
Apple fared better, gaining 0.7% after reporting stronger-than-expected profit and revenue.
Apple and a few other Big Tech stocks, known as the “Magnificent Seven,” were the primary drivers behind the S&P 500 setting numerous records this year, partly due to excitement around artificial intelligence technology. However, their momentum slowed last month amid concerns that investors had overvalued their prices.
Friday’s losses for tech stocks pushed the Nasdaq composite 10% below its peak set last month, a drop that traders refer to as a “correction.”
Other sectors of the stock market, which had been struggling due to high interest rates, began to rebound sharply last month as tech stocks declined, particularly smaller companies. However, these sectors also fell on Friday amid concerns that a fragile economy could hurt their profits.
The Russell 2000 index of smaller stocks dropped 3.5%, more than the broader market.
Overall, the S&P 500 fell 100.12 points to 5,346.56. The Dow dropped 610.71 to 39,737.26, and the Nasdaq composite fell 417.98 to 16,776.16.
In the bond market, Treasury yields fell sharply as traders anticipated deeper rate cuts from the Federal Reserve. The yield on the 10-year Treasury fell to 3.79% from 3.98% late Thursday and from 4.70% in April.
Internationally, Japan’s Nikkei 225 dropped 5.8%, struggling since the Bank of Japan raised its benchmark interest rate on Wednesday. The hike increased the value of the Japanese yen against the U.S. dollar, potentially hurting exporters' profits and dampening a tourism boom.
Chinese stocks fell as investors were disappointed by the government’s latest growth-stimulating measures, which were seen as insufficient. Stock indexes dropped by more than 1% across much of Europe.
Commodity prices also faced challenges this week. Oil prices surged after the killings of leaders of Hamas and Hezbollah raised fears of a broader conflict in the Middle East disrupting crude supplies. However, prices fell back on Thursday and Friday due to concerns that a weakening economy would reduce fuel demand. A barrel of benchmark U.S. crude dropped below $74 on Friday after starting the week above $77.
