4:15pm: Economic data sparks market anxiety
Markets closed sharply lower on Friday, with the Nasdaq dropping into correction territory following a July jobs report that raised concerns about a potential recession and the Federal Reserve's extended high interest rates.
At the close, the Nasdaq had lost 2.4% at 16,776, the Dow was down 1.5% at 39,737 and the S&P 500 down 1.8% at 5,347.
Markets grew increasingly anxious about a potential recession later this week due to weakening economic data, according to Kristian Kerr, Head of Macro Strategy for LPL Financial.
“The latest snapshot of the labor market is consistent with a slowdown, not necessarily a recession. However, early warning signs suggest further weakness. The number of those working part-time for economic reasons rose to the highest since June 2021. If the labor market weakens further, markets will likely price in three cuts this year.”
12:07pm: Seeing red
Renewed recession fears from a weaker-than-expected jobs report saw US stocks firmly in negative territory at midday.
The Nasdaq, which was also hit by a sell-off in chip stocks, was down 2.3% at 16,798 points, the Dow Jones was down 2.1% or 845 points at 39,523 points, and the S&P 500 was down 2% at 5,335 points.
Comerica Bank chief economist Bill Adams said the July jobs report has added to the risk that the economy slows unduly in the second half of 2024, or even slips into a recession.
He said with the increase in unemployment to 4.3%, the Sahm Rule has been triggered: an observation by economist Claudio Sahm that when the unemployment rate’s three-month moving average is above its minimum in the trailing 12 months, the economy has historically been in recession.
“Her observation is especially powerful because it applies to the unemployment rate as reported in real-time, not the more accurate revised data that can show the economy to be in a recession months or even years after the recession started,” Adams said.
The bank expects the Federal Reserve will cut interest rates at each of its remaining meetings in 2024 – September, November and December – reducing the funds rate to the range of 4.5% to 4.75% by the year-end.
10:35am: Fed rate cutting strategy in question
The unexpected rise in the unemployment rate to 4.3% has increased the likelihood of a significant rate cut by the Federal Reserve in September, as analysts question the Fed's timing and approach amidst a weakening labor market.
This comes as fears grow that the Federal Reserve's efforts to stem inflation by holding interest rates this week could put the US at risk of recession.
According to analysts, the odds of a 50 basis point cut in September have surged to 70%, according to Jay Woods, chief global strategist at Freedom Capital Markets (NASDAQ:FRHC).
“Was the data dependent Fed too late to act again? The market is saying just that,” Woods commented.
“The trends in inflation were heading in the right direction, but the softening of the labor market never seemed to get the focus when discussing their ‘dual mandate’. This week that narrative changed and the market is leading that discussion.”
9.41am: Tough start for Wall Street
Weak jobs data sent stocks spiralling in the US on Friday morning.
The Dow Jones fell 466 points to 39,881 as the day’s trading got underway, while the Nasdaq and S&P 500 were down 337 and 71 points respectively at the open.
According to Bureau of Labour Statistics non-farm payroll data, 114,000 jobs were added to the US economy in July - well below expectations for 175,000.
Unemployment climbed to 4.3% over the month too, the data showed, hitting its highest level since October 2021.
Gold and US Treasury prices jumped as investors fled from stocks, with the former climbing 0.8% to US$$2,470 per ounce for the day and yields on the latter plummeting.
Capital.com analyst Daniela Sabin Hathorn commented that the “meltdown” had been prompted by concerns the Federal Reserve made the wrong call in holding interest rates this week, placing the US economy at risk of recession.
She added: “What seems like a given now is that the Fed will cut rates in September, the question that now arises is by how much.”
8.54am: Stocks to plummet on jobs data
Non-farm payroll data showing the US economy added far fewer jobs than expected last month were set to send stocks into freefall on Friday morning.
Ahead of the opening bell, the Dow Jones was down 546 points at 39,968, while the Nasdaq and S&P 500 fell 463 and 99 points respectively.
Data from the Bureau of Labour Statistics on Friday showed 114,000 jobs were added to the US economy in July - far off expectations for 175,000.
Unemployment also rose over the month to 4.3%, climbing to its highest level since October 2021.
This comes as fears grow that the Federal Reserve's efforts to stem inflation by holding interest rates this week could put the US at risk of recession.
“Since inflation figures have come into shooting distance of the Fed’s target, [...] the balance of risks has begun to change,” Charles Schwab director Richard Flynn commented.
“Today’s figures may stir anxieties that central bankers haven’t moved fast enough to cut rates, nudging the jobs market into a downward spiral.”