Wall Street today: US stocks tumbled on Friday, September 6, as investors worried about the health of the economy after a mixed US jobs report cemented expectations for the US Federal Reserve to lower interest rates this month, but created uncertainty about the size of the cut. The MSCI’s global equities gauge fell more than one per cent and US Treasury yields also dropped in the session.
The S&P 500 dropped 1.7 per cent to close out lowest since March 2023, recording its worst week in 18 months. Tech majors such as Nvidia drove the market lower amid concerns that prices soared too high in the boom around artificial intelligence (AI), and dragged the tech-heavy Nasdaq composite down by a market-leading 2.6 per cent. The Dow Jones Industrial Average dropped 410 points, or one per cent, after erasing a morning gain of 250 points.
How US jobs data moved Wall Street today
The Labor Department reported that US employment increased less than expected in August while the jobless rate dropped in line with expectations to 4.2 per cent from 4.3 per cent in July, suggesting an orderly slowdown in the labor market.
Nonfarm payrolls rose by 142,000 in August but fell short of the 160,000 growth economists polled by Reuters had expected while July numbers were revised down to 89,000 from 114,000. Sharp swings also hit the bond market, where Treasury yields tumbled, recovered and then fell again after the jobs report showed US employers hired fewer workers in August than economists expected.
The jobs data was billed as the most important jobs report of the year, and it showed a second straight month where hiring came below forecasts. It also followed recent reports showing weakness in manufacturing and some other areas in the economy.
Still, the jobs report did include some encouraging data points. For one, the unemployment rate improved to 4.2 per cent from 4.3 per cent a month earlier, better than economists expectations. Even if August’s hiring was weaker than forecast, it was still better than July’s pace.
The closely watched jobs data showed labor market momentum slowing more than expected, suggesting a narrower path for the US to achieve a soft landing, in which the US Fed is able to cool inflation without badly damaging economic growth.
The US Fed is expected to cut interest rates at its September 17-18 meeting, but the data revived fears that months of elevated borrowing costs have already started to pressure the economy. That will be a potentially grim development for investors, after prospects for rate cuts against a background of resilient growth helped drive the S&P 500 to record highs this year.
By Friday afternoon, traders were betting on a 73 per cent probability the Fed would cut rates by 25 basis points this month versus 60 per cent on Thursday, while bets for a 50 basis point cut fell to 27 per cent from 40 per cent, CME Group’s FedWatch tool showed.
Fed officials’ positive signals on rate cuts highlights that a labor market cooling could accelerate into something more dire without a policy shift. The remarks were widely seen as endorsing a 25 basis point cut while leaving the door open to further and perhaps bigger moves should the job market keep slowing.
Friday’s data raised questions about how much the US Federal Reserve will cut its main interest rate by at its meeting later this month. The Fed is about to turn its focus more toward protecting the job market and preventing a recession after keeping the federal funds rate at a two-decade high for more than a year.
Cuts to interest rates can boost investment prices, but the worry on Wall Street is that the US Fed may be moving too late. If a recession does hit, it would undercut corporate profits and erase the benefits from lower rates.
Christopher Waller, a member of the Fed’s board of governors said he thinks a “series of reductions” to rates is appropriate given that a slowing job market now looks like the bigger threat for the economy than high inflation, he said the ultimate pace and depth of those cuts is still to be determined.
Also Read: RBI vs US Fed: Which central bank will cut interest rates first? Here’s a 5-point analysis
US stocks today
Despite its dismal week, the S& P 500 remains just 4.6 per cent below its all-time high set in July. It is also still up 13.4 per cent for 2024 so far. A big reason for Friday’s sharp drops was weakness for some big tech stocks that had been benefiting from the AI boom.
The Dow Jones Industrial Average fell 410.34 points, or 1.01 per cent, to 40,345.41, the S&P 500 lost 94.99 points, or 1.73 per cent, to 5,408.42 and the Nasdaq Composite lost 436.83 points, or 2.55 per cent, to 16,690.83.
MSCI’s gauge of stocks across the globe fell 10.79 points, or 1.33 per cent, to 801.88. For the week, the index was showing a 3.9 per cent decline, which would be its deepest since the week beginning July 29.
Broadcom tumbled 10.4 per cent despite reporting profit and revenue for the latest quarter that were above analysts’ forecasts, thanks in part to AI. The chip company said it expects to make $14 billion in revenue this quarter, which was slightly below analysts’ expectations. Its stock sank 15.9 per cent for the week.
Other chip companies also fell Friday, including a five per cent drop for Nvidia. After soaring earlier this year as its revenue surged on the AI frenzy, Nvidia’s stock has been shaky since mid-July as investors question whether they took it too high. Because of its massive size, Nvidia’s stock is one of the most influential on Wall Street, and fell 13.9 per cent over the week.
Earlier, Europe’s STOXX 600 index closed down 1.1 per cent. Germany’s DAX index had closed down 1.5 per cent earlier after data showed the country’s industrial production fell 2.4 per cent in July. In the bond market, benchmark 10-year Treasury yields were lower after the payrolls report but managed to back away from a 15-month low hit earlier in the day.
The yield on benchmark US 10-year notes fell 1.2 basis points to 3.721 per cent, from 3.733 per cent late on Thursday. The two-year note yield, which typically moves in step with interest rate expectations, fell 8.9 basis points to 3.6627 per cent, from 3.752 per cent late on Thursday.
A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 5.8 basis points.
In currencies, the dollar index rose in volatile trading with focus on the steady slowdown in the labor market suggesting more rate cuts after September. The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, gained 0.14 per cent to 101.18.
The euro was down 0.21 per cent at $1.1087. Against the Japanese yen, the dollar weakened 0.76 per cent to 142.35. In energy markets, oil prices sold off more than two per cent in their fifth straight day of declines as concerns around the weak US jobs number outweighed price support from a delay to supply increases by OPEC producers.
US crude futures settled down 2.14 per cent at $67.67 a barrel, at their lowest close since June 2023 while Brent ended the session at $71.06 per barrel, down 2.24 per cent, for its lowest close since December 2021. In precious metals, gold prices sank from near-record levels earlier in the day. Spot gold lost 0.81 per cent to $2,495.86 an ounce.
Overall, the S&P 500 fell 94.99 points to 5,408.42. The Dow dropped 410.34 to 40,345.41, and the Nasdaq composite lost 436.83 to 16,690.83. While the stock-market reaction to the previous payrolls data was worse, it was the first time since 2012 when the S&P 500 posted declines of at least 1.5 per cent for two jobs days in a row.
With inputs from AP, Reuters
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