Stock Market Today: Dow closes down 600 points, Nasdaq enters correction after weak jobs

NEW YORK (MBNEWS24) — Equities plummeted on Friday amid apprehensions that the U.S. economy might be buckling under the strain of elevated interest rates designed to tame inflation.

Stock Market Today:

The S&P 500 declined 1.8%, marking its first consecutive losses of at least 1% since April. The Dow Jones Industrial Average plunged 610 points, or 1.5%, while the Nasdaq composite slid 2.4%, as a global stock sell-off circled back to Wall Street.

A report indicating that U.S. employers significantly slowed their hiring last month, much more than economists anticipated, ignited fear across stock markets, causing both stocks and bond yields to drop precipitously. This followed a series of weaker-than-expected economic reports from the previous day, including deteriorating U.S. manufacturing activity, one of the sectors most affected by high rates.

Just days earlier, U.S. stock indices had surged to their best performance in months after Federal Reserve Chair Jerome Powell suggested that inflation had decelerated sufficiently to consider rate cuts starting in September.

Now, concerns are mounting that the Fed may have maintained its main interest rate at a two-decade high for too long. A rate reduction would facilitate borrowing for U.S. households and businesses, potentially stimulating the economy, but it might take months to a year for the full impact to materialize.

“The Fed is snatching defeat from the jaws of victory,” commented Brian Jacobsen, chief economist at Annex Wealth Management. “Economic momentum has decelerated so significantly that a rate cut in September will be too little and too late. They’ll need to implement a more substantial cut than the traditional quarter-percentage-point to stave off a recession.”

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Traders are now estimating a 70% probability that the Fed will slash its main interest rate by half a percentage point in September, based on data from CME Group. This is despite Powell’s statement on Wednesday that such a significant reduction is “not something we’re contemplating at the moment.”

Certainly, the U.S. economy continues to grow, and a recession is not a foregone conclusion. The Fed has been clear about the delicate balance it has been maintaining since it began aggressively hiking rates in March 2022: Being overly aggressive could stifle the economy, while being too lenient could allow inflation to flourish.

Although Powell refrained from declaring victory on the employment or inflation fronts on Wednesday, prior to the discouraging economic reports, he mentioned that Fed officials “have considerable leeway to respond if we observe weakness” in the job stock market after elevating its main rate to such heights.

“Today’s employment data certainly contributes to the weakening economy narrative, but I believe the stock market is overreacting and pricing in excessive rate cuts at this juncture,” said Nate Thooft, senior portfolio manager at Manulife Investment Management. “Yes, the economy is weakening, but I am not convinced the data thus far is a death knell for the economy.”

U.S. stocks were already poised for losses on Friday before the disappointing jobs report jolted Wall Street.

Several major technology companies delivered underwhelming profit reports, continuing a largely disheartening trend that began last week with results from Tesla and Alphabet.

Amazon tumbled 8.8% after reporting lower-than-expected revenue for the latest quarter. The retail and tech behemoth also provided an operating profit forecast for the summer that fell short of analysts’ projections.

Intel fell even further, dropping 26.1%, its worst day in 50 years, after the chipmaker’s profit for the latest quarter fell significantly short of forecasts. It also suspended its dividend payment and forecast a loss for the third quarter when analysts had anticipated a profit.

Apple held steadier, inching up 0.7%, after reporting better-than-expected profit and revenue.

Apple and a select few other major tech stocks, dubbed the “Magnificent Seven,” were the primary drivers behind the S&P 500 setting numerous records this year, partly due to the excitement surrounding artificial intelligence technology. However, their momentum shifted last month amid concerns that investors had driven their prices too high.

Friday’s losses for tech stocks pushed the Nasdaq composite 10% below its record set last month. This level of decline is termed a “correction” by traders.

Fortunately for Wall Street, other segments of the stock market, battered by high interest rates, began rebounding sharply last month as tech stocks retreated, particularly smaller companies. However, they too plummeted on Friday over concerns that a fragile economy might erode their profits.

The Russell 2000 index of smaller stocks fell 3.5%, more than the broader stock market.

In summary, the S&P 500 dropped 100.12 points to 5,346.56. The Dow fell 610.71 to 39,737.26, and the Nasdaq composite slid 417.98 to 16,776.16.

In the bond market, Treasury yields fell sharply as traders anticipated deeper rate cuts from the Federal Reserve. The yield on the 10-year Treasury dropped to 3.79% from 3.98% late Thursday and from 4.70% in April.

In international stock markets, Japan’s Nikkei 225 fell 5.8%. It has struggled since the Bank of Japan raised its benchmark interest rate on Wednesday, pushing up the value of the yen against the U.S. dollar, which could hurt profits for exporters and dampen a tourism boom.

Chinese stocks declined as investors expressed disappointment with the government’s latest efforts to spur growth through various piecemeal measures, rather than broad stimulus infusions, while stock indices dropped by more than 1% across much of Europe.

Commodity prices also experienced turbulence this week. Oil prices surged after the killings of leaders of Hamas and Hezbollah stoked fears that a widening conflict in the Middle East could disrupt the flow of crude.

However, prices retreated on Thursday and Friday over concerns that a weakening economy would reduce fuel demand. A barrel of benchmark U.S. crude fell back below $74 on Friday after starting the week above $77.