US stocks experienced a notable downturn on Friday after a disappointing jobs report suggested a further slowdown in the labor market. The S&P 500 dropped by 0.7%, pulling back from the all-time closing high reached the previous day. The Dow Jones Industrial Average fell 0.8%, while the Nasdaq Composite declined approximately 0.6%. This reversal marked a significant shift from earlier gains that day.
According to the Bureau of Labor Statistics, the US economy added just 22,000 jobs in August, far below the anticipated 75,000. This figure has intensified concerns regarding the sluggish performance of the labor market. The unemployment rate climbed to 4.3%, up from 4.2% in July. Additionally, revisions to previous months’ data revealed that, over the last three months, the economy has generated fewer than 30,000 new jobs monthly. June even recorded a negative figure—a decline of 13,000 jobs—marking the first contraction since the onset of the COVID-19 pandemic.
This sobering jobs report fueled speculation regarding imminent interest-rate cuts by the Federal Reserve. Market traders are now assigning a 100% probability to a rate reduction at the Fed’s upcoming September meeting, with expectations growing for a more substantial “jumbo” cut of 50 basis points. Following the report, Treasury yields tumbled, with the 30-year yield dropping below 4.79% and the benchmark 10-year yield falling to its lowest level since April at 4.07%.
The release of the jobs report immediately prompted criticism from former President Trump towards Fed Chair Jerome Powell, who he accused of being slow to respond to economic indicators. Trump’s comments came on the heels of a Senate hearing to confirm his pick for Fed governor, Stephen Miran, amid ongoing discussions regarding the Fed’s direction.
In the technology sector, optimism surrounding artificial intelligence (AI) buoyed certain stocks. Broadcom shares surged more than 10% after the company provided an upbeat sales outlook and announced a deal to manufacture chips for OpenAI, further solidifying its position in the generative AI marketplace. Tesla’s stock also rose following a proposed compensation package for CEO Elon Musk that could amount to $1 trillion if performance targets are met.
Early trading on Friday saw a rally as investors reacted to the weak jobs report. The S&P 500 initially gained 0.4%, returning from its all-time high, while other indices also opened higher, driven largely by gains in tech stocks like Tesla and Broadcom.
Subsequent market behavior indicated a surge in expectations for future Fed rate cuts. Before the jobs report, the likelihood of a cut was already significant, but post-report, sentiments shifted to nearly universal expectations for a 25-point cut this month, alongside increasing bets for a more aggressive 50-point reduction. Many traders are anticipating a total of up to three rate cuts by the end of the year.
Friday’s losses in the stock market were compounded by specific struggles within individual companies. Notably, shares of Lululemon plummeted following a disappointing earnings report that revised profit expectations sharply downward, reflecting broader concerns regarding sales performance and increased competition.
Gold prices remained stable after hitting a record high earlier in the week, bolstered by the week’s weak jobs data and continued skepticism about the Federal Reserve’s independence.
Overall, the disappointing jobs report highlighted significant challenges within the US economy, affecting both market performances and future monetary policy considerations.
