Stock Market Plummets After This Week’s Reports
The stock market experienced a substantial decline on Friday, precipitated by a
disappointing jobs report. By noon ET, the Dow Jones Industrial Average had dropped 810
points, or 2.3%, while the S&P 500 and the Nasdaq Composite were down 2.6% and 3.1%
respectively. This decline was triggered by the U.S. adding only 114,000 jobs in July,
significantly below the anticipated 185,000 and much lower than the 206,000 jobs added in
June. Concurrently, the unemployment rate rose from 4.1% to 4.3%.
Economic concerns were further exacerbated by a 3.3% decline in factory orders as
reported by the U.S. Commerce Department, marking the largest drop since April 2020. This
sell-off pushed the Nasdaq index into correction territory, falling over 10% from an all-time high set just a month earlier. The S&P's decline was its most significant since 2022.
Friday's report indicates that the job market is cooling faster than previously known,
rekindling fears of a recession. The unemployment rate has risen this year from 3.7% to 4.3%, triggering the "Sahm Rule," which suggests that a rise of 0.5 percentage points in the
unemployment rate within a 12-month period typically precedes a recession.
Major Companies Share Price’s Drop
Intel's shares led the downturn, plummeting 29% following weak guidance and layoffs.
Amazon also saw a considerable decline, with its shares falling 12.5% after missing quarterly
financial estimates and issuing a disappointing forecast. This marked the second consecutive
day of a significant market sell-off, following weaker-than-expected data, including a
disappointing manufacturing output report and unexpectedly high initial jobless claims.
The cooling of the job market signals a potential economic downturn, bolstering the case
for an interest rate cut at the Federal Reserve's next meeting in September. Analysts noted that the central bank might have erred in holding interest rates steady at its meeting earlier this week. Nick Bunker, economic research director for North America at Indeed Hiring Lab, stated, "The labor market is in a perilous spot. It’s not clear what changes and rescues it from its current trajectory."
Major Companies Share Price’s Drop
Major stock indexes fell in early trading on Friday in response to the jobs data. Mark
Hamrick, senior economic analyst at Bankrate, described the July employment report as landing "with a loud thud." Prominent economist and New York Times opinion writer Paul Krugman characterized the economy as "pre-recessionary" but suggested it might avoid a downturn due to technical reasons for the elevated unemployment rate. However, he called on the Fed to "cut, cut, cut" to rekindle job growth.
The fresh jobs data extends a months-long stretch of economic performance marked by
the key conditions for a rate cut: falling inflation and slowing job gains. Price increases have
slowed significantly from a peak of over 9%, though inflation remains a percentage point higher than the Fed's target rate of 2%. An outright drop in prices in June compared to the previous month marked significant progress in slowing inflation.
Despite recent optimism about a "soft landing" where inflation returns to normal levels
while the economy avoids a recession, the jobs report has tempered some of that enthusiasm. Nick Bunker warned that "the soft landing in the U.S. labor market is in danger."
Analysts and Economists Reactions
Wall Street has moved into "careful what you wish for" territory as investors shift from
pushing the Federal Reserve to lower its key lending rate to worrying about the broader health of the economy. U.S. stocks have lost over $1.2 trillion in value over the past two trading days, transforming an early-week gain into one of the year's biggest declines as investors refocus from inflation concerns to the overall economic health.
Weakening labor market data has driven this shift, starting with a muted June job
openings report from the Labor Department, suggesting workers weren't finding new positions and raises as easily as before. This was followed by weekly jobless claims rising to their highest in nearly a year, and data showing slowing wage gains and tepid employment costs. Friday's nonfarm payroll report showed a sharp slowdown in July hiring, the weakest wage gains in over three years.
The bond market reacted harshly to the recent string of jobs and activity data, with
benchmark 10-year Treasury note yields falling to their lowest levels since December, indicating investor concerns about slowing GDP growth prospects.
Fed Rate Cuts and Economic Growth
The recent data suggests that the Fed may have kept rates too high for too long,
potentially requiring more significant and frequent rate cuts than previously indicated. Bets on a 50-basis-point reduction surged to over 70% following the July jobs report, with traders
anticipating more cuts in the final two meetings of the year.
However, second-quarter growth was recently estimated at 2.8%, supported by business
inventories and consumer spending, the most powerful driver of U.S. growth. The Atlanta Fed's GDP Now forecasting tool estimates the current quarter advance at 2.5%, although downward revisions are likely to reflect recent jobs and activity data.
Overall, the market's reaction to the disappointing jobs report and other economic data
indicates growing concerns about the health of the U.S. economy and the need for more
aggressive monetary policy adjustments by the Federal Reserve.
Comentários