S&P 500, Dow, Nasdaq See Largest Weekly Loss in Years After Weak Jobs Data

U.S. stock markets finished lower on Friday, resulting in significant weekly losses for all three major indexes. This downturn followed a disappointing jobs report that left investors uncertain about potential interest rate cuts by the Federal Reserve in the near future.

Over the week, the S&P 500 decreased by 4.25%, marking its most considerable weekly decline since March 2023, while the Dow Jones Industrial Average fell by 2.93%. The Nasdaq experienced a more profound drop of 5.77%, representing its largest weekly loss since January 2022.

In August, U.S. employers added only 142,000 jobs, falling short of Bloomberg’s consensus estimate of 163,000. Additionally, the July employment figure was revised down to 89,000, also below expectations. On a slightly positive note, the unemployment rate dropped to 4.2%, down from July’s 4.3%.

The slowing job growth points to a weakening economy, leading many to believe that the Federal Reserve will likely implement rate cuts during its policy meeting on September 18. However, some analysts argue that these cuts may be initiated too late for the economy to stabilize effectively. Lou Basenese, president and chief market strategist at MDB Capital in New York, expressed concerns about the timing. He stated that if layoffs start occurring in the upcoming months, it could indicate that the Fed’s timing was inadequate.

In the bond markets, there was anticipation regarding rate cuts as the two-year Treasury yield dropped to its lowest level since 2022. This suggests that investors are bracing for a potential shift in monetary policy.

In comments made on Friday, Fed Governor Christopher Waller stated that “the time has come” for the central bank to initiate a series of interest rate cuts. He also mentioned that he remains open-minded about the magnitude and pace of these potential reductions.

The CME’s Fed watch tool indicates a 71% probability of a quarter-point cut at the Fed’s next meeting, with a 29% likelihood for a half-point reduction. In comparison, during 2022 and 2023, the Fed raised its key interest rate from near zero to a peak of 5.25% to 5.5% in an effort to combat rising inflation, and this rate has been maintained since then.

Broader corporate news also contributed to the market’s decline. Broadcom’s shares fell by 10%, dropping to $137.00, following the company’s forecast for fourth-quarter revenue that fell slightly below estimates due to reduced spending in its broadband division. Meanwhile, Super Micro Computer’s stock plummeted by 6.87%, settling at $386.46 after analysts at J.P. Morgan downgraded the AI server maker’s shares from overweight to neutral.

This combination of underwhelming economic data and corporate earnings forecasts weighed heavily on investor sentiment, featuring prominently in the overall market downturn. With the uncertainties surrounding future economic conditions and monetary policy, investors are being extra cautious in the current environment.

As the Federal Reserve’s policy meeting draws closer, the market will be closely watching any indications regarding interest rate adjustments and their potential impact on the economy. Analysts will keep track of upcoming reports that may provide insight into consumer spending, inflation rates, and employment data, all of which will play crucial roles in shaping Fed decisions moving forward.

Source: Reuters