Stocks fell sharply on Friday as a much weaker-than-anticipated jobs report for July ignited worries that the economy could be falling into a recession.
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.
Stocks sank after July job growth in the U.S. slowed more than expected, while 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.
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.
The Nasdaq is the first of the three major benchmarks to enter correction territory, down more than 10% from its record high. The S&P 500 and Dow were 5.7% and 3.9% below their all-time highs, respectively.
Friday’s declines are a “natural course” in a bull market that is reverting after its steep uptrend, LPL Financial chief technical strategist Adam Turnquist said.
″[The Nasdaq] was very overbought coming into July, same thing with semiconductors. And a lot of that AI enthusiasm hasn’t really had a reality check at this stage,” he said, adding that “it’s not the end of the AI story.”
But it was more than just technology stocks that saw selling on Friday. Bank stocks were slammed on the recession fears with Bank of America off 4.9% and Wells Fargo down 6.4%.
It has been a volatile week with the S&P 500 moving more than 1% in each of the past three trading sessions. The stock market had rallied Wednesday when the Fed gave a strong hint that a rate cut was coming at its next meeting in September. After Friday’s weak job figures, many investors are starting to believe the central bank should have acted on Wednesday.
Stocks end Friday in the red Full Read
Stocks extended their steep declines on Friday.
The Dow Jones Industrial Average dropped 610.71 points, or 1.51%, to finish at 39,737.26. The S&P 500 lost 1.84% to end at 5,346.56, while the Nasdaq Composite shed 2.43% to close at 16,776.16.
— Pia Singh
Sahm Rule founder says the U.S. isn’t in recession, but risks are rising
Though the numbers indicate the so-called Sahm Rule has been triggered, the developer of the indicator said the economy is not in recession.
“We are not in a recession now — contrary [to] the historical signal from the Sahm rule — but the momentum is in that direction,” Claudia Sahm, chief economist at New Century Advisors, said via email. “A recession is not inevitable and there is substantial scope to reduce interest rates.
The rule states that when the unemployment rate over a three-month period averages half a percentage point above the 12-month low, the economy is in recession. The jobless rate rose to 4.3% in July, bringing the three-month average to more than 4.1%, compared to the 3.5% 12-month low.
However, Sahm said in a recent Substack post that the rule “is likely overstating the labor market’s weakening due to unusual shifts in labor supply caused by the pandemic and immigration.”
“The Sahm rule is currently sending the right cautionary message about the labor market cooling, but the volume is too loud,” she added.
— Jeff Cox
These low-volatility stocks could be a safe haven amid the market sell-off
With the market selling off and the Nasdaq Composite entering correction territory on Friday, a collection of stocks could help investors ride out the volatility.
The CNBC Pro Stock Screener Tool turned up a handful of names with low volatility and a strong dividend return yield that could give investors a safe haven and still provide growth. The names on the list span behemoths in the fast-food industry as well as a premier defense contractor. read the full story here. — Brian Evans
Challenging environment for equities, says Deutsche Bank
Friday’s sell-off, which continues the market’s losses on Thursday, indicates rising nervous sentiment among investors, according to Deutsche Bank.
The CBOE Volatility Index rose to its highest level since April, the firm noted. The challenges are not just isolated to the U.S. The Nikkei in Japan also declined nearly 5%, its worst day since 2022, head of global economics and thematic research Jim Reid wrote in a Friday note.
“The past 24 hours have seen an increasingly precarious backdrop for risk markets with a risk-off mood on the back of another batch of weak U.S. data yesterday followed by mostly downbeat tech earnings overnight,” said Reid.
— Hakyung Kim
The Federal Reserve will need to go into ‘economic protection mode’ and lower rates, investor says
The Federal Reserve will have to do some damage control now that the labor market is showing signs of weakening, according to Byron Anderson, head of fixed income at Laffer Tengler Investments.
“The Fed narrative of data dependent should be done moving forward especially if the labor data continues to fall before the next Fed meeting,” Anderson wrote. “The Fed will need to go into economic protection mode moving forward to calm markets.”
“We should see rate cuts shortly and the bond market is asymmetrically positioned lower for the short term,” Anderson continued.
— Sarah Min
Morgan Stanley sees ‘narrowing’ path to goldilocks scenario for equities
Equities could have a more difficult time capturing a goldilocks scenario as the second-quarter earnings season leaves little upside surprises, according to Morgan Stanley’s Global Investment Committee.
″[T]he earnings season has produced limited positive surprises, with forecasts reflecting negative revisions breadth and hints of skepticism about returns on generative AI investments,” Morgan Stanley Wealth Management Chief Investment Officer Lisa Shalett said. “The implication, once again, is market action pivoting almost exclusively on valuation multiples and thus the rates forecast.”
“And it is here that the GIC is cautious,” she added. “While a soft landing remains our base case, we recognize that the path to a ‘Goldilocks’ scenario is narrowing, with US consumers increasingly solely dependent on jobs for consumption.”
— Brian Evans
Rick Rieder says jobs data showing material weakness, Fed should have cut rates already
Rick Rieder, BlackRock Chief Investment Officer of global fixed income, believes Friday’s disappointing jobs report suggested that the Federal Reserve should have moved forward with a rate cut earlier this week.
“Today’s data … in fact suggests that the Fed should have started cutting already as the Fed Funds rate at 5 3/8% is clearly too restrictive relative to inflation that is trending in the low 2′s and with slack building in the labor force,” he said in a note.
Rieder said the data showed “material” weakness in the labor market and marked the first clear sign of employment slowing across virtually every metric of the jobs report.
— Yun Li
Stocks making the biggest moves in afternoon trading
Check out some of the companies making headlines:Chevron — Stock in the oil major slipped more than 3% after the company’s second-quarter earnings missed Wall Street estimates. Chevron reported adjusted earnings of $2.55 per share on revenue of $51.18 billion. Analysts polled by LSEG forecast earnings of $2.93 per share on $50.8 billion in revenue.
Intel — The chipmaker slumped nearly 27% and was on track for its worst single day ever following softer-than-expected guidance and steep layoffs. Intel said it would trim its workforce by 15,000 employees and would also not pay its fiscal fourth-quarter dividend.
Amazon — Stock in the e-commerce firm pulled back more than 9.5% after Amazon reported a disappointing third-quarter outlook. The firm now expects revenue of $154 billion to $158.5 billion in the fourth quarter, while analysts polled by LSEG expected $158.24 billion.
Read the full list here.
— Brian Evans
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