On Friday, U.S. stock markets faced a significant downturn, largely driven by a disappointing jobs report that heightened concerns about a potential economic slowdown. The Dow Jones Industrial Average, a key indicator of market performance, closed the day down by 612 points, translating to a 1.5% drop. Earlier in the session, the index had experienced a much steeper decline, exceeding 900 points. The S&P 500, another major index, fell by 1.8%, while the Nasdaq Composite, heavily weighted towards technology stocks, dropped 2.4%. This decline was severe enough to push the Nasdaq into what is termed “correction territory,” a designation applied when an index falls by more than 10% from its most recent peak, which in this case occurred on July 10.
The sharp sell-off in stocks came in response to the latest employment data released by the Bureau of Labor Statistics. According to the report, the U.S. economy added only 114,000 jobs in July. This figure was significantly below the forecasted addition of 175,000 jobs, marking a notable deceleration in job creation. The unemployment rate also rose to 4.3% from 4.1%, exceeding expectations that it would remain stable. This increase in unemployment, coupled with lower-than-expected job growth, raised alarms about the overall health of the labor market and the economy.
The negative sentiment in the stock market was further amplified by additional economic data released earlier in the week. On Thursday, it was reported that first-time applications for jobless benefits had risen to their highest level since August of the previous year. Moreover, the number of claims from individuals who have been receiving unemployment benefits for an extended period also increased, reaching its highest level since November 2021. These figures contributed to mounting fears about a weakening job market and its potential impact on economic growth.
Adding to the concerns, data from the Institute for Supply Management revealed a decline in U.S. manufacturing activity for July. This marked the fourth consecutive month of contraction in the manufacturing sector, signaling ongoing challenges in the economy. The combination of weak employment data and contracting manufacturing activity heightened worries among investors about a potential economic downturn.
David Russell, global head of market strategy at TradeStation, noted that the latest employment numbers reflect a significant slowdown in hiring, which aligns with the previous day’s claims data. Russell expressed concern that the Federal Reserve, which had been criticized for its slow response to inflation, might now be lagging in addressing an economic slowdown. This sentiment reflects growing apprehension about the Fed’s ability to effectively manage the economy in the face of shifting economic conditions.
The recent economic reports have significantly impacted investor sentiment, leading to declines across major stock indexes. The Federal Reserve’s policy decisions have also been a focal point for investors. On Wednesday, the Fed hinted at the possibility of a rate cut in September, acknowledging progress in moderating inflation. Traders are now anticipating up to three rate cuts this year, according to the CME FedWatch Tool. This expectation has contributed to volatility in the markets as investors adjust their expectations based on the central bank’s signals.
In addition to economic data, earnings reports from major technology companies have influenced market movements. Microsoft’s shares fell by 4% this week after the company reported cloud revenue that fell short of projections. Apple, despite reporting earnings in line with expectations, missed sales forecasts, resulting in a modest increase of 0.9% in its shares. Amazon’s disappointing revenue forecast led to an 8% decline in its shares for the week. In contrast, Meta Platforms saw a notable increase of 4.8% in its shares following strong quarterly earnings and an improved revenue outlook for 2024.
The market has also seen a shift in investor focus away from the so-called “Magnificent Seven” tech stocks that had driven market gains earlier in the year. This shift follows recent data suggesting that inflation is cooling, which has raised optimism about potential rate cuts and their positive effects on smaller stocks that have struggled under high interest rates.
Meanwhile, Intel’s shares have faced significant pressure, plummeting by 31.5% for the week after the company reported a decline in revenue to $12.8 billion and an income loss of $1.6 billion for the second quarter. This sharp decline in Intel’s stock price reflects investor concerns about the company’s financial performance and future prospects.
As markets continue to react to the evolving economic landscape and corporate earnings reports, stock levels are likely to remain volatile. Investors will be closely monitoring upcoming data and developments for further indications of economic trends and potential policy responses from the Federal Reserve.