Wall Street Tumbles on Fears of Economic Slowdown
The stock market took a sharp downturn on Friday, with the S&P 500 experiencing its first back-to-back losses of at least 1% since April. The Dow Jones Industrial Average dropped 610 points, or 1.5%, and the Nasdaq composite fell 2.4%. This sell-off extended to global markets, with stocks and bond yields dropping sharply around the world.
The decline was triggered by a report showing that hiring by U.S. employers slowed last month by much more than economists expected. This followed a series of weaker-than-expected economic reports, including a worsening for U.S. manufacturing activity.
Just a few days ago, U.S. stock indexes had jumped to their best day in months after Federal Reserve Chair Jerome Powell indicated that inflation had slowed enough for cuts to rates to begin in September. However, the latest economic reports have raised concerns that the Fed may have kept its main interest rate at a two-decade high for too long.
Traders are now betting on a 70% probability that the Fed will cut its main interest rate by half a percentage point in September, even though Powell has stated that such a deep reduction is not currently being considered.
While the U.S. economy is still growing, and a recession is not a certainty, the Fed is walking a tightrope. Being too aggressive with rate hikes could choke the economy, but going too soft could give inflation more room to breathe.
The disappointing jobs report, coupled with underwhelming profit reports from several big technology companies, contributed to the market's decline. Amazon fell 8.8% after reporting weaker revenue than expected, while Intel dropped 26.1% after its profit fell short of forecasts.
The Nasdaq composite, heavily weighted towards technology stocks, fell 10% below its record set last month, entering what traders call a "correction." Other areas of the stock market, such as smaller companies, also tumbled on worries that a fragile economy could undercut their profits.
The bond market also saw a sharp decline, with Treasury yields falling as traders forecasted deeper cuts to rates coming from the Federal Reserve.
In international markets, Japan's Nikkei 225 dropped 5.8%, while Chinese stocks fell as investors were disappointed with the government's latest efforts to spur growth. Stock indexes across Europe also dropped by more than 1%.
Commodity prices also had a rough week, with oil prices initially leaping after the killings of leaders of Hamas and Hezbollah fueled fears of a wider conflict in the Middle East. However, prices fell back on Thursday and Friday due to concerns about a weakening economy.