Wall Street is headed for its worst week in 18 months A weaker-than-expected jobs report On Friday, investors were worried about slowing US economic growth.
Technology stocks took the brunt of the pain. The Nasdaq Composite tumbled 2.6% as Broadcom, Nvidia and other tech companies led the market lower on continued concern that their shares could be pushed too high on the boom around artificial intelligence.
The S&P 500 tumbled 1.6% in afternoon trading, putting it on pace for its worst week since March 2023. The Dow Jones Industrial Average was down 452 points, or 1.1%, by 2:40 a.m. after flipping an early gain of 250 points. .
The market was jittery after the August jobs report showed that US employers hired fewer workers than economists expected, while government data showed weaker workers were hired in July than previously reported. It was the second straight month that hiring came in below forecasts, raising concerns after recent data showed weakness in manufacturing and several other sectors of the economy.
Friday is on its way The month after the markets crash On a disappointing July jobs report, which sparked fears that the US labor market is cracking under the highest interest rates in 23 years.
“Markets are wondering — as is the Fed — whether the August payrolls data reflects a normalization of the labor market toward pre-Covid levels or whether it is indicative of the economy losing dangerous momentum,” noted Quincy Crosby, chief global strategist. LPL Financial, in email.
“The lower unemployment number suggests a pattern of downward revisions versus a pattern of downward revisions indicating more severe economic conditions are worsening,” Crosby added.
The action was even wilder in the bond market, where Treasury yields fell, recovered and then fell again following the jobs report.
Such weakness in the job market is exactly what the Federal Reserve and its chairman, Jerome Powell, are trying to induce to prevent high inflation, “but only to a certain extent and the data is now testing the limits stated by Chair Powell. “, said Scott Wren, senior global market strategist at Wells Fargo Investment Institute.
Expected Fed Rate Cuts
Weaker-than-expected hiring is raising questions about how much the Federal Reserve will have to cut its key interest rate at its meeting later this month.
Powell has already hinted that the Fed is likely to cut rates for the first time since the 2020 Covid crash. The Fed wants to protect the job market and prevent the economy from sliding into recession after holding the federal funds rate at a two-decade high for more than a year.
Such cuts could boost investment prices, especially if the Fed moves beyond the traditional size of a quarter of a percentage point move. But the worry on Wall Street is that the Fed could be too little, too late, and the slowing U.S. economy could slide into recession. That would reduce corporate profits and erase the gains from lower rates.
“All is not well with the labor market,” said Brian Jacobsen, chief economist at Annex Wealth Management. “The Fed wants the labor market to come into better equilibrium, but any equilibrium function is unstable.”
Fed’s Waller: Economic Data “Requires Action”
Still, the jobs report included some more encouraging data points. For one, the unemployment rate rose to 4.2% from 4.3% a month earlier. That was better than economists expected. And even if August’s tide was weaker than forecast, it was better than July’s pace.
Christopher Waller, a member of the Fed’s Board of Governors, said in a speech After the release of Jobs report that recent economic data supports the central bank’s new direction, noting, “The current batch of data no longer calls for patience, it calls for action.”
“While the labor market has clearly cooled, based on the evidence I’m seeing, I don’t believe the economy is in a recession or necessarily going into one anytime soon,” he said.
While Waller said he believes a “range of cuts” in rates is appropriate although a sluggish job market now looks like a bigger threat to the economy than higher inflation, he also said the final pace and depth of those cuts has yet to be determined. .
Broadcom, Nvidia Tumble
On Wall Street, Broadcom tumbled 8.9% despite reporting profit and revenue in the quarter that topped analysts’ estimates, thanks in large part to a boom around artificial intelligence. The chip company said it expects revenue of $14 billion this quarter, which was slightly below analysts’ expectations of $14.11 billion, according to FactSet.
Other chip companies also fell, including a 4.4% drop for Nvidia. After the AI frenzy boosted its revenue earlier this year, Nvidia’s stock has been volatile since mid-July as investors question whether they took it too high. Yet Nvidia continues to top analysts’ expectations for growth.
Big tech companies have become the market’s most dominant after their superstar runs made them bigger, and Nvidia was the top weight on the S&P 500 on Friday.
Still the losses were widespread, and more than 80% of stocks in the S&P 500 were falling. Small stocks in the Russell 2000, whose profits are more closely tied to the strength of the US economy than those of many large multinationals, fell 1.5%.
On the winning side of Wall Street was US Steel, which rose 5.6% after the CEO of rival Cleveland Cliffs told MSNBC that his company would still be interested in acquiring US Steel if the White House blocks its proposed sale to Japan’s Nippon Steel. Lorenzo Goncalves also accused Nippon of repeated violations of trade policies and cited national security issues if the proposed $14 billion Nippon-US Steel deal were to go through.
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