Stocks had their worst day in over a year on Friday weighed down by a jobs report that showed a continued labor market slowdown but left traders uncertain about how far the Federal Reserve will go in cutting interest rates.
The Dow Jones Industrial Average dropped 410.34 points, or 1%, to 40,345.41. The S&P 500 lost 1.7%, and the Nasdaq slipped 436 points, or 2.6%.
The S&P 500 and the Dow had their biggest weekly drop since March 2023, and the Nasdaq tumbled nearly 6% this week — its biggest weekly drop since January 2022.
Labor Department data showed US employers added 142,000 jobs in August, shy of analyst expectations, while jobs growth for July was revised down to 89,000, also below estimates.
The report means Federal Reserve chair Jerome Powell must cut rates later this month, but also suggests he may be too late for the economy to achieve a soft landing, said Lou Basenese, president and chief market strategist at MDB Capital in New York.
“If we start seeing layoffs in the next month or two, it’s going to suggest his timing was too late. Stocks are going to go down until next week when the Fed makes it definitive that they’re cutting, which could put pressure on them to do 50 basis points versus 25 bps. I think 25 bps is all but guaranteed,” Basenese said.
Fed Governor Christopher Waller said on Friday “the time has come” for the central bank to begin a series of interest rate cuts, adding he is open-minded about the size and pace.
Traders’ bets for a 25-basis point rate cut in September stood at 73%, according to the CME Group’s FedWatch Tool, while those for a 50-bps reduction in rates were at 27%, down from a brief rise to 51% after the report.
“I still think the Fed is going to move 25 basis points,” said Tony Roth, chief investment officer at Wilmington Trust in Radnor, Pennsylvania. “I don’t think that the Fed is really ready at this point to push the panic button.”
Leading megacap growth stocks were lower. Nvidia was down 4.1%, Tesla fell 8.5%, Alphabet dropped 4%, Amazon lost 3.7%, Meta lost 3.2%, Microsoft shed 1.6%, and Apple fell 0.7%.
Broadcom sank 10% after the chipmaker forecast fourth-quarter revenue slightly below estimates, hurt by sluggish spending in its broadband segment.
Other chip stocks were down. Marvell Technology dropped 5.3% and Advanced Micro Devices shed 3.7%. The Philadelphia SE Semiconductor index was down 4.5% — its biggest weekly drop since March 2020.
Super Micro Computer dropped 6.8%. JPMorgan analysts had downgraded AI server maker’s shares to “neutral” from “overweight.”
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