Following a poor employment report, the Dow closes down 600 points and the Nasdaq begins to correct: real-time updates
Following a poor employment report, the Dow closes down 600 points and the Nasdaq begins to correct: real-time updates
Fears that the economy could be heading into a recession were stoked by a far weaker-than-expected jobs data for July, which caused stocks to plunge dramatically on Friday.
At 5,346.56, the broad market index finished with a 1.84% decline. With a 2.43% loss to end at 16,776.16, the tech-heavy index saw a decrease of more than 10% from its most recent all-time high. To close at 39,737.26, the Dow Jones Industrial Average dropped 610.71 points, or 1.51%. The 30-stock index was down 989 points at the session’s low.
After July’s unexpected slowdown in job growth in the United States and an increase in the unemployment rate to its highest level since October 2021, stocks plunged. According to the Labor Department, nonfarm payrolls increased by just 114,000 last month, which was less than the 185,000 analysts surveyed by Dow Jones had predicted and a slowdown from the 179,000 jobs gained in June. At 4.3%, the unemployment rate rose.
Fearing that the Federal Reserve erred in retaining interest rates at current levels this week, investors flocked to bonds for protection, causing the yield on the 10-year Treasury to drop to its lowest level since December.
Due to investor worries raised by Amazon’s second-quarter results over Big Tech’s excessive levels of capital investment on artificial intelligence, several megacap stocks witnessed severe losses during the day. The massive online retailer dropped 8.8% after releasing a dismal outlook and missing Street revenue projections. Conversely, Intel plummeted 26% with the announcement of poor forecasts and layoffs. Nvidia had a 1.8% decline after dropping 6% the day before.
With a decline of almost 10% from its peak, the Nasdaq is the first of the three main indexes to enter correction zone. The Dow was 3.9% behind its all-time high and the S&P 500 was 5.7% below it.
Friday’s losses, according to chief technical analyst Adam Turnquist of LPL Financial, are a “natural course” in a bull market that is correcting following its sharp ascent.
The Nasdaq and semiconductors were both heavily overbought heading into July. “It’s not the end of the AI story,” he continued, adding that “a lot of that enthusiasm hasn’t really had a reality check at this stage.”
But Friday saw selling in equities other than technology. Fears of a recession sent bank stocks down, with Wells Fargo down 6.4% and Bank of America down 4.9%.
The S&P 500 has moved more than 1% in the last three trading sessions, indicating that this week has been extremely volatile. When the Fed strongly hinted that rates might be reduced at its upcoming meeting in September, the stock market responded positively on Wednesday. Many investors are beginning to feel that the central bank ought to have taken action on Wednesday in light of Friday’s dismal job data.
The originator of Sahm Rule claims that although dangers are increasing, the US is not in a recession.
The creator of the indicator claimed that despite the data suggesting the so-called Sahm Rule had been activated, the economy is not in a recession.
According to Claudia Sahm, chief economist of New Century Advisors, “we are not in a recession now—contrary [to] the historical signal from the Sahm rule—but the momentum is in that direction” in an email. “Recessions are not inevitable, and interest rates can be lowered significantly.”
According to the criterion, an economy is considered to be in recession when the average unemployment rate during a three-month period is half of what it was at the 12-month low. In July, the unemployment rate increased to 4.3%, which raised the three-month average to 4.1% from the 3.5% 12-month low.
The rule, according to Sahm, “is probably overstating the labor market’s weakening due to unusual shifts in labor supply caused by the pandemic and immigration,” he said in a recent Substack article.
“At this point, the Sahm rule is appropriately warning about the cooling labor market, but the volume is too high,” she continued.
These low-volatility equities can provide refuge during the market sell-off.
Several equities might help investors weather the market’s volatility on Friday as it sold down and the Nasdaq Composite entered correction zone.
A few firms with low volatility and a high dividend return yield were identified by the CNBC Pro Stock Screener Tool as potential safe haven investments that might also expand. The list includes well-known defense contractors and giants in the fast-food sector.
The complete story is available to CNBC Pro subscribers here. Additionally, users may create custom screens using the CNBC Pro Stock Screener Tool.
Challenging environment for equities, according to Deutsche Bank
The sell-off on Friday, which extends the market’s losses from Thursday, shows that investors are becoming more anxious, the firm said. The CBOE Volatility Index increased to its highest level since April, indicating that the problems are not limited to the United States. Jim Reid, head of global economics and thematic research, wrote in a note on Friday that the Nikkei in Japan declined by nearly 5%, its worst day since 2022.
Investors claim that the Federal Reserve will have to decrease interest rates and enter “economic protection mode.”
Byron Anderson, head of fixed income at Laffer Tengler Investments, believes that now that the job market is beginning to decline, the Federal Reserve will need to perform some damage control.
“Going forward, the Fed narrative of being data dependent should be completed, particularly if the labor data declines before the next Fed meeting,” Anderson said. “In order to calm markets, the Fed will need to enter economic protection mode going forward.”
Anderson went on, “Rate cuts should occur soon, and the bond market is asymmetrically positioned lower for the near term.”
Morgan Stanley believes that the route to stocks’ goldilocks scenario is “narrowing.”
According to Morgan Stanley’s Global Investment Committee, equities may find it more challenging to capture a goldilocks situation if the second-quarter earnings season offers few positive surprises.
According to Morgan Stanley Wealth Management Chief Investment Officer Lisa Shalett, “[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.” “Market action is, once again, largely dependent on valuation multiples and, consequently, the rates forecast.”
She said, “And this is where the GIC is cautious.” “A gentle landing is still our best guess, but we see that there is less room for improvement
as US consumers become more and more reliant on jobs for consumption.”
Jobs numbers reflect a substantial downturn, according to Rick Rieder, and the Fed should have already lowered rates.
According to Rick Rieder, Chief Investment Officer of Global Fixed Income at BlackRock, the Federal Reserve ought to have acted sooner this week on a rate decrease, as indicated by Friday’s dismal employment data.
As the Fed Funds rate at 5 3/8% is obviously overly restrictive in relation to inflation, which is moving in the low 2s, and with slack increasing in the labor market, today’s data really shows that the Fed should have started lowering already, he wrote in a note.
According to Rieder, the statistics demonstrated a “material” deterioration in the labor market and the first indication that employment is clearly slowing down across almost all of the jobs report’s metrics.
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