Stocks finished sharply lower Friday trading as investors parsed details of a weaker-than-expected August jobs report that could both clarify the Federal Reserve's rate path and provide a litmus test to concerns that economic growth is slowing into autumn.
The Dow Jones Industrial Average tumbled 410.34, or 1.01%, to finish the session at 40,345.41, while the S&P 500 slipped 1.73% to 5,408.42 and the tech-heavy Nasdaq dropped 2.55% to 16,690.83.
It was the worst week for the Nasdaq since June 2022, while the S&P experienced its worst week since March 2023.
“Markets have had to grapple with - just as the Fed is doing - whether the August payroll data reflects a labor market normalizing towards pre-Covid levels or whether it's indicative of an economy losing dangerous momentum,” said Quincy Krosby, chief global strategist for LPL Financial.
“The lower unemployment number versus the downward revisions presents a quandary given the pattern of downward revisions indicating more serious economic conditions becoming entrenched,” he added.
Bill Adams, chief economist for Comerica Bank, said “the job market is in decent shape but moving in the wrong direction.”
“Job growth is not keeping up with rising labor force participation, almost the highest in 23 years in July and August,” he said. “Also, the big wave of immigrants who came to the U.S. in the last few years are integrating into the workforce, raising the potential growth rate of employment.”
Adams called for the Fed to cut short-term interest rates a full percentage point by the end of January.
"That will help credit-intensive parts of the economy like housing, manufacturing, and business investment accelerate, and help job growth stabilize," he said.
Updated at 12:50 PM EDT
Bad week
Stocks are deepening their decline heading into the final hours of the worst weekly performance for the S&P 500 in at least year.
The benchmark was last marked 1.63% lower on the session to extend its four-day decline to around 4.2%. The Nasdaq, meanwhile, is down 421 points, or 2.46%, to take its week-to-date decline to around 5.7%.
The pullback comes despite comments from Fed Governor Christopher Waller, who told an event at the University of Notre Dame that he would be open to bigger rate cuts if data were to support the case.
"I was a big advocate of front-loading rate hikes when inflation accelerated in 2022, and I will be an advocate of front-loading rate cuts if that is appropriate," he said.
Reminder: Investing at an all-time high has been better than waiting for a pullback.
— Mike Zaccardi, CFA, CMT 🍖 (@MikeZaccardi) September 5, 2024
SPX since 1988 pic.twitter.com/uNndMNuEkV
Updated at 10:45 AM EDT
Back in the red
Modest early gains have given way to another stock pullback, with the S&P 500 down 68 points, or 1.23% and the Nasdaq falling 335 points, or 1.95%.
Bond markets are also active, with rate-sensitive 2-year note yields easing to 3.673% and benchmark 10-year Treasury yields falling to 3.680%.
"Friday's jobs report shows that the labor market is continuing at a sturdy, but slowing pace, and that gives the Federal Reserve the ability to cut interest rates by either 25 or 50 basis points at the September meeting," said Carol Schleif, chief investment officer at BMO Family Office.
"Part of the Fed's decision on how deep of a rate cut to initiate in September will also depend on the August CPI report, which is released next week," she added.
Especially after the excitement of a month ago, when analysts and economists suddenly jacked up their probability of an economic recession, this morning’s (August) US jobs report comes as a relief… that is unless you were absolutely convinced that the Federal Reserve would cut…
— Mohamed A. El-Erian (@elerianm) September 6, 2024
Updated at 9:39 AM EDT
Mixed open
The S&P 500 was marked 6 points, or 0.11% higher in the opening minutes of trading, with the Nasdaq dipping 60 points, or 0.3%.
The Dow, meanwhile, jumped 215 points while the small-cap Russell 200 index gained 6 points, or 0.13%.
S&P 500 Opening Bell Heatmap (Sept. 06, 2024)$SPY +0.12%🟩$QQQ -0.34%🟥$DJI +0.29%🟩$IWM +0.16%🟩 pic.twitter.com/BelXPqDrXM
— Wall St Engine (@wallstengine) September 6, 2024
Updated at 8:44 AM EDT
It's a cool, cool summer
The economy added a fewer-than-expected 142,000 new jobs last month, with downward revisions to June and July tallies, indicating a clear cooling momentum in the labor market.
The BLS report also noted nudgingly higher earnings on both a monthly and annual basis, but the big revisions and headline miss are likely to cement the case for a big Fed rate hike later this month in Washington.
U.S. stocks pared their earlier declines following the data release, with futures tied to the S&P 500 indicating and opening bell decline of around of around 17 points while those linked to the Dow Jones Industrial Average suggests a 125 point pullback. The Nasdaq, meanwhile, was indicated 125 points lower.
Benchmark 10-year Treasury note yields fell 3 basis points to 3.689% following the data release, the lowest since December of last year, while rate-sensitive 2-year notes fell 5 basis points to 3.661%.
Payrolls by sector pic.twitter.com/NxWOYWc1CB
— Liz Ann Sonders (@LizAnnSonders) September 6, 2024
Stock Market Today
Stocks ended lower Thursday, with the S&P 500 extending its September decline to 2.57%, following a mixed set of data releases that cast confusion over the state of the labor market.
A muted August reading of the ISM's benchmark survey of activity in the services sector, the key driver of U.S. growth, also sowed concern that growth is sputtering under the weight of high Fed interest rates in a late-cycle economy.
That puts today's August employment report in sharp focus for Wall Street. Investors are looking to establish the size of the Fed's next rate cut, which would be the first in more than a year, and the pace and scope of further cuts heading into the final two meetings of the year.
At present, CME Group's FedWatch suggests a 41% chance of a half-point reduction on Sept. 18, but those odds could change quickly if today's payroll report were to show any deviation from Wall Street's current forecast.
Olivier Douliery/Bloomberg via Getty Images
Analysts expect that employers added 164,000 new jobs to the economy last month, up from the July tally of 114,000, with the headline unemployment rate easing to 4.2%.
"The labor market continues to show signs of softening overall, but remains unlikely to fall apart completely," said Selma Hepp, chief economist at CoreLogic. "The real question remains whether or not the Federal Reserve waited too long to begin to reduce rates in the effort to avoid recession and if a soft landing is indeed achievable."
Bond markets have been expressing that very concern for much of the week, with rate-sensitive 2-year note yields falling to 3.717%, down more than 20 basis points on the month.
At the same time, growth-focused 10-year notes are down 23 basis points at 3.699% as investors move cash into safe-haven assets.
Related: Jobs report to signal timing and size of autumn Fed interest rate cuts
Heading into the start of the trading day on Wall Street, with the jobs data due at 8:30 a.m. U.S. Eastern Time, futures tied to the S&P 500 suggest a 37 point pullback at the opening bell.
The Dow Jones Industrial Average, meanwhile, is called 140 points lower while the tech-focused Nasdaq is set for a 2325 point decline amid another pullback in heavyweight chip stocks tied to new export controls floated by the Biden Administration.
More Wall Street Analysts:
- Analysts reboot Grand Theft Auto maker's stock price target
- American Express stock analyst flags concerning shift in consumer behavior
- Analyst resets Nvidia stock price target before earnings
In Europe, the regional Stoxx 600 benchmark fell 0.43% in early Frankfurt trading following a downward revision for second quarter eurozone GDP, while Britain's FTSE 100 slipped 0.37%.
Overnight in Asia, the Nikkei 225 fell 0.72% in Tokyo in a follow-on move to last night's Wall Street decline, while the regionwide MSCI ex-Japan benchmark edged 0.22% higher into the close of trading.
Related: Veteran fund manager sees world of pain coming for stocks
