US stocks experienced a significant decline across the board on Friday following the release of the July jobs report, which indicated a further cooling in the labor market. This news raised concerns among investors that the Federal Reserve’s current stance on interest rates, which is leaning towards maintaining higher rates for a longer period, could potentially lead to a recession. The central bank’s delay in initiating rate cuts was also a cause for worry among market participants.
The tech-heavy Nasdaq Composite (^IXIC) dropped by 2.6% after the release of the jobs report, pushing the index into correction territory, which is defined as a more than 10% drop from its recent high on July 10. Similarly, the Dow Jones Industrial Average (^DJI) slumped by 1.5%, shedding over 600 points, while the S&P 500 (^GSPC) sank by 1.8%. All three major indexes recorded weekly losses, with the S&P and the Dow falling by 2% and the Nasdaq shedding 3%. The Russell 2000 (RUT) fared even worse, posting a weekly loss of about 6.8%.
The disappointing data from the July jobs report showed that the US economy added fewer jobs than expected, while the unemployment rate unexpectedly rose to 4.3%, according to the Bureau of Labor Statistics‘ nonfarm payrolls report. These signs of a slowdown in the labor market are likely to fuel recession fears and increase expectations for rate cuts by the Federal Reserve.
Traders are now pricing in three rate cuts for this year, expected to take place in September, November, and December, with bets on a 50 basis-point reduction in September. Following the labor-market update, the yield on the benchmark 10-year Treasury (^TNX) dropped further below the 4% level, trading around 3.79%.
In addition to the economic data, news on individual stocks added to the negative sentiment in the market. Chipmaker Intel (INTC) reported disappointing earnings, leading to a significant drop in its stock price. The company announced plans to cut jobs and suspend dividends after missing on earnings and falling short on its sales forecast. This news had a ripple effect on other chip stocks, contributing to the overall decline in the tech sector.
Other tech giants also faced challenges, with Amazon stock sliding almost 9% due to sales guidance that fell below Wall Street estimates. However, Apple (AAPL) managed to outperform, with its shares up slightly after beating earnings expectations, despite a decline in iPhone sales.
The market’s reaction to the July jobs report and the subsequent decline in stock prices highlighted concerns about the overall health of the economy and the Federal Reserve’s monetary policy. The sell-off in tech stocks, in particular, raised questions about the impact of AI investments on Big Tech companies and their future growth prospects.
As investors navigate the uncertainties in the market, the upcoming earnings reports from major companies like Disney, Uber, Eli Lilly, and Novo Nordisk will provide further insights into the current economic landscape. The volatility in the stock market and the ongoing discussions about potential rate cuts by the Federal Reserve underscore the challenges and opportunities facing investors in the months ahead.