Weak Jobs Report Stokes Recession Fears, U.S. Stock Market Enters Correction

U.S. stock market saw sold off for a second straight session on Friday, and the Nasdaq Composite confirmed it was in correction territory after a weak jobs report stoked fears of an oncoming recession. Stocks fell sharply a much weaker-than-anticipated jobs report for July ignited worries that the economy could be falling into a recession.

The Labor Department said nonfarm payrolls increased by 114,000 jobs last month, well short of the 175,000 average forecast by economists. The unemployment rate jumped up to 4.3%, near a three-year high.

U.S. heading towards recession

“Obviously the jobs number is the big headline, but we seem to have officially entered at least a rational world where bad economic news is read as bad rather than bad economic news is read as good,” said Lamar Villere, portfolio manager at Villere & Co. in New Orleans.

The weak jobs data also triggered what is known as the “Sahm Rule,” seen by many as a historically accurate recession indicator.

Weak jobs report

Stock market had a bad day as shares sank after July job growth in the U.S. slowed more than expected. The unemployment rate rose to the highest since October 2021. Nonfarm payrolls grew by just 114,000 last month, the Labor Department reported, a slowing from 179,000 jobs added in June and below the 185,000 expected by economists polled by Dow Jones. The unemployment rate increased to 4.3%.

The 10-year Treasury yield fell to its lowest since December as investors flooded into bonds for safety on the fear the Federal Reserve made a mistake this week by keeping interest rates at current levels.

Current stock market trends

The broad market index dropped 1.84% to end at 5,346.56. The Nasdaq Composite lost 2.43% to close at 16,776.16, bringing the decline for the tech-heavy index from its recent all-time high to more than 10%. The Dow Jones Industrial Average fell 610.71 points, or 1.51%, to finish at 39,737.26. At its session low, the 30-stock index was down 989 points.

Adding downward pressure was drop in Amazon, down 8.79%, and Intel , which plunged 26.06% after their quarterly results and disappointing forecasts.

The declines pushed the Nasdaq Composite down more than 10% from its July closing high to confirm the index is in a correction after concerns grew about expensive valuations in a weakening economy.

The S&P 500 closed at its lowest level since June 4. Both the benchmark S&P index and the blue-chip Dow suffered their biggest two-day slides since March 2023.

The small cap Russell 2000 index slumped 3.52% to close at a three-week low and saw its biggest two-day drop since June 2022.

Chip stocks also continued their recent downdraft, and the Philadelphia SE Semiconductor Index closed at a three-month low after its biggest two-day slide since March 2020.

Steady rates affected economic growth

The data added to concerns the economy was slowing more rapidly than anticipated and the Federal Reserve had erred by keeping rates steady at its policy meeting that concluded on Wednesday.

Expectations for a rate cut of 50 basis points (bps) at the Fed’s September meeting jumped to 69.5% from 22% in the prior session, according to CME’s FedWatch Tool, opens new tab.

Mega stock forecast

Some megacap names saw steep losses during the day, as Amazon’s second-quarter results sparked investor concerns about Big Tech’s blowout levels of artificial intelligence-related capital spending. The e-commerce giant slid 8.8% after missing the Street’s revenue estimates and issuing a disappointing forecast. Intel, meanwhile, cratered 26% after announcing weak guidance and layoffs. Nvidia lost 1.8%, following a 6% loss a day before.

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