The stock market tanked on Friday despite the August jobs report coming in slightly lower than expected and dropping significantly from last month, which did little to ease investor concerns about more aggressive interest rate hikes from the Federal Reserve plunging the economy into a recession.
Stocks gave up gains in the afternoon and turned negative: The Dow Jones Industrial Average was down 1.1%, over 300 points, while the S&P 500 lost 1.1% and the tech-heavy Nasdaq Composite 1.3%.
Stocks initially opened higher after the U.S. economy added 315,000 jobs in August—slightly under the 318,000 expected by analysts and far lower than the 526,000 new jobs added in July, according to data released by the Labor Department on Friday.
Though unemployment ticked up to 3.7% from 3.5%, the jobs market has remained strong despite slowing economic growth this year, which Fed officials have pointed to as evidence that the economy can withstand more aggressive rate hikes without falling into a recession.
The labor market is “less tight than it was in July” and “moving in the right direction for policymakers,” meaning that overall this is a “good report for those concerned about inflationary impacts of a tight labor market,” says Jeffrey Roach, chief economist for LPL Financial.
Despite the solid jobs data, stocks added to losses this week and continued to fall amid hawkish comments from Fed officials that the central bank will continue to raise interest rates well into next year and it would take some time before a reversal in monetary policy.
Many Wall Street experts now warn that the prospect of the Fed raising rates “higher for longer” could well spook markets into retesting their June lows, especially as September is historically the market’s worst month on record.
“The market is in a bad place in general – rising interest rates and too high inflation,” says Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “The Fed is somewhat on autopilot for the near future – they will be hiking rates no matter what – but to the extent that the economic data comes in like this, it could take some pressure off of them in future meetings.”
Stocks finished higher on Thursday to kick off the month of September, which has historically been a rough one for markets. Still, all three major averages are set to post their third negative week in a row, continuing a slump that began in mid-August. Optimism about a potential Fed pivot, which was driving the rally earlier this summer, has faded—especially after comments from Fed chair Jerome Powell last week, who reiterated aggressive rate hikes for the foreseeable future.
I am a senior reporter at Forbes covering markets and business news. Previously, I worked on the wealth team at Forbes covering billionaires and their wealth.
Investors parsed through the latest jobs report showing U.S. hiring remained elevated in May. Nonfarm payrolls added 390,000 jobs last month, the Bureau of Labor Statistics reported Friday. Economists expected 328,000 jobs added, according to Dow Jones. Average hourly earnings rose 0.3% in May, according to the BLS, slightly less than the consensus estimate of 0.4% and in line with April’s pace.
“Good news is bad news. … It reminds us that the Fed is still the swing factor, at least in investor emotion,” Mark Hackett, Nationwide’s chief of investment research, said. Traders selling stocks likely reacted to the move higher in rates with fears of the Federal Reserve tightening monetary policy at the forefront. The benchmark 10-year Treasury yield climbed after the report, above the 2.9% level.
“Numbers this strong would likely reverse any hopes the Fed would consider a pause in rate hikes after the June/July increases, because it would signal the labor market remains very tight,” Tom Essaye of the Sevens Report said. Cleveland Fed President Loretta Mester later Friday said she supports aggressive rate hikes ahead, as she has not seen enough evidence that inflation has peaked.
“I don’t want to declare victory on inflation before I see really compelling evidence that our actions are beginning to do the work in bringing down demand in better balance with aggregate supply,” Mester said on CNBC’s “The Exchange.” Investors fear higher rates could slow the economy too much and tip it into a recession. Higher yields also discount the value of future earnings, which can make stocks look less attractive, especially growth and tech names.
Technology shares retreated Friday amid the rising rates. Micron Technology fell 7.2%, and Nvidia lost about 4.5%. Mega-cap tech names Google-parent Alphabet and Meta Platforms declined roughly 2.6% and 4.1%, respectively. Apple pulled back about 3.9% after a cautious research note from Morgan Stanley. The firm said slowing App Store growth could hurt the company in the near-term.
Tesla shares fell 9.2% after Reuters reported, citing an internal email, that CEO Elon Musk wants to cut 10% of jobs at the car maker. According to Reuters’ report, Musk also said in the email that he has a “super bad” feeling about the economy. The comments from Musk come after warnings from other bellwether companies this week. JPMorgan Chase CEO Jamie Dimon on Wednesday said he expects an economic “hurricane” ahead amid the war in Ukraine and the Fed’s tightening regime.
On Thursday, Microsoft cut its earnings and revenue guidance for the fiscal fourth quarter, citing unfavorable foreign exchange rates. This week’s decline comes in spite of a strong session Thursday and after a winning prior week. “We have transitioned pretty demonstrably from a ‘buy the dip’ world last year to a ‘sell the rally.’ Last week was a rally, this week is a bit of a pullback. Yesterday was a rally, today’s a pullback,” Nationwide’s Hackett said. “It’s very hard to have consecutive weeks or consecutive days of strength because there’s so much worry that people use any piece of good news as a chance to sell,” he added.
Companies in focus
- Tesla Inc. TSLA, -2.51% Chief Executive Elon Musk said Monday he is aiming to get the electric-vehicle maker’s self-driving technology ready by year-end, and said he hopes it could quickly be in wide release in the U.S. and even Europe depending on regulatory approval, Reuters reported. Shares finished down by 1.1%.
- Shares of Bed Bath & Beyond Inc. BBBY, -0.92% closed 25% higher and bucked the broader market’s selloff as meme-stock investors expressed optimism ahead of the home-goods retailer’s strategic update.
- On Monday, Boeing Co. BA, -1.20% announced an order from United Parcel Service Inc. UPS, -0.28% for eight more 767 Freighters. That would bring package delivery giant UPS’s fleet of 767 Freighters to 108. Boeing shares ended 0.5% higher.
- The ICE U.S. Dollar Index DXY was flat.
- Oil futures rallied, with October WTI crude CLV22, +0.44% rising $3.95, or 4.2%, to settle at $97.01 a barrel on the New York Mercantile Exchange. Meanwhile, gold futures for December delivery lost a dime to settle at $1,749.70 an ounce.
- Bitcoin BTCUSD, -0.01% rose 0.9% to trade at $20,184.
- The Stoxx Europe 600 SXXP, +2.04% finished down by 0.8%, while London markets were closed for the summer bank holiday.
- The Shanghai Composite SHCOMP, +0.05% ended 0.1% higher, while the Hang Seng Index HSI, -0.74% finished down by 0.7% in Hong Kong and Japan’s Nikkei 225 NIK, -0.04% dropped 2.7%.
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