Wall Street experienced a downward trend on Friday as energy and financial stocks faced significant declines. Investors reacted to a troubling August job growth report, which indicated a sharp slowdown, while simultaneously retaining optimism about a potential shift in Federal Reserve policy towards interest rate cuts. All three major market indexes ended the day in negative territory.
The Dow Jones Industrial Average (DJI) fell 0.5%, losing 220.43 points to close at 45,400.86. Out of the 30 stocks that comprise the index, 20 reported losses, indicating a tough day for most constituents. The tech-focused Nasdaq Composite had a minimal decline of 7.31 points, rounding out the trading day at 21,700.39, while the S&P 500 slipped 20.58 points, or 0.3%, to finish at 6,481.50. Five out of the 11 sectors of the S&P 500 closed in the red, with notable declines in the Energy Select Sector SPDR (XLE) down 1.9%, the Financials Select Sector SPDR (XLF) down 1.8%, and the Industrials Select Sector SPDR (XLI) down 0.4%. Conversely, the Real Estate Select Sector SPDR (XLRE) marked a gain of 1%.
The CBOE Volatility Index (VIX), often referred to as the fear gauge, saw a decrease of 0.8%, settling at 15.18. Trading volume was robust on Friday, with a total of 16.95 billion shares exchanged, surpassing the 20-session average of 16.05 billion. On both the NYSE and the Nasdaq, advancers outnumbered decliners, showcasing a 1.87-to-1 and 1.42-to-1 ratio, respectively.
The main catalyst for Friday’s downturn was the release of a disappointing jobs report from the Labor Bureau, which revealed that the U.S. economy added a mere 22,000 jobs in August, substantially below the expected 80,000. Additionally, previous months’ figures were revised downwards, although July’s job count was adjusted upwards to 79,000 from an earlier estimate of 73,000. This dismal data raised concerns regarding the robustness of the labor market and the overall economic landscape, intensifying speculation about a Fed interest rate cut, possibly occurring as soon as mid-September, with a 25 basis point cut being widely anticipated, and some discussions hinting at a potential 50 basis point cut.
Initially, markets opened positively due to expectations surrounding interest rate cuts, but momentum quickly waned, leading to a reversal in equity gains. The bond market responded with a notable drop in yields, particularly for the benchmark 10-year Treasury, reflecting a flight to safety and reinforcing expectations of forthcoming policy easing measures. Financial stocks were disproportionately affected, with shares of Wells Fargo & Company and JPMorgan Chase & Co. declining by 3.5% and 3.1%, respectively.
In addition to labor market concerns, oil prices also faced pressure, contributing to the overall market decline. Expectations of rising supply ahead of an upcoming OPEC meeting exacerbated the situation, leading Brent crude prices to close at $65.50 per barrel, down $1.49 or 2.22%, while WTI crude ended at $61.87, decreasing by $1.61 or 2.54%.
Regarding weekly performance, U.S. stocks displayed mixed results as concerns about weak August job growth, changing Fed expectations, and ongoing global uncertainties impacted market sentiment. The S&P 500 managed to gain about 0.3% over the week, while the Nasdaq rose by 1.1%, buoyed by strength in tech stocks and hopes for interest rate cuts. In contrast, the Dow fell approximately 0.3%, influenced by recessionary fears. Treasury yields decreased as investors sought secure assets, while oil prices faced downward pressure amidst softening demand projections leading up to the OPEC meeting. Trade tensions and macroeconomic challenges continued to create volatility in the markets, favoring growth sectors while traditional industrials lagged behind.
Economic data released by the Labor Bureau revealed an increase in the unemployment rate for August, rising to 4.3%, up from 4.2% in July, which remained unchanged. The average workweek for August was reported at 34.2 hours, consistent with the downwardly revised figure for July. Meanwhile, average hourly earnings saw an increase of 0.3% in August, matching the previous month’s growth rate.
