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U.S. stocks fell sharply on Friday after a jobs report confirmed a slowdown in the labor market. At the same time, the data left traders uncertain about how aggressively the Federal Reserve will cut interest rates in the near future.
Three major indexes lost ground, and all 11 sectors of the S&P 500 (.SPX) ended the day with losses. The biggest declines were in sectors such as communications services (.SPLRCL), consumer discretionary (.SPLRCD) and tech stocks, putting additional pressure on the market.
The S&P 500 and Dow posted their biggest weekly loss since March 2023, while the Nasdaq posted its worst weekly loss since January 2022.
The Labor Department reported that 142,000 jobs were created in August, well short of analysts' forecasts. In addition, the July figure was revised down to 89,000, also below expectations.
The Fed is likely to decide on interest rate cuts at its Sept. 17-18 meeting, but weak labor market data has raised concerns that months of high borrowing costs are beginning to weigh on the economy. That's an unwelcome backdrop for investors who had previously bet on rate cuts and robust growth, which has helped fuel the S&P 500's (.SPX) record run this year.
Friday brought more losses for U.S. stocks, with the S&P 500 falling 1.7% to end the week down nearly 4.3%. It was the index's steepest weekly loss since March 2023. Tech leaders were among the casualties, including Nvidia (NVDA.O), whose shares, symbolizing the artificial intelligence boom, fell more than 4% to hit their lowest in more than a month.
The Cboe Volatility Index (.VIX), known as Wall Street's "fear gauge," jumped to its highest in nearly a month on Friday, reflecting investors' growing concerns about market uncertainty.
Multiple factors continue to weigh on the market. Futures showed Friday that traders see about a 70% chance the Fed will cut rates by 25 basis points, and a 30% chance of 50 basis points. However, for many market participants, the question remains open.
Despite recent corrections, the S&P 500's tech sector (.SPLRCT) continues to trade at more than 28 times expected earnings, well above its long-term average of 21.2. This could point to a possible revaluation, fueling speculation about the future direction of the market.
In addition to market factors, investors are also focused on the US presidential election, which is entering a decisive phase. The tight race between Democrat Kamala Harris and Republican Donald Trump will come to the fore on Tuesday, when both candidates meet in debates ahead of the vote on November 5. This political context could be an important factor in the market's dynamics in the coming weeks.
The market is once again confirming September's status as one of the most difficult months for investors. Historically, since 1945, the S&P 500 has lost an average of about 0.8% during this month, making September the worst month for stocks, according to CFRA data. This time, things have not been any better – the index has already fallen 4% since the start of the month.
"If we start seeing more layoffs in the coming months, that would be a signal that we're overdue," said Lou Bazenese, president and chief market strategist at MDB Capital in New York. He added that stocks are likely to continue to slide until next week, when the Fed may make a final rate cut. He said there's a chance that under pressure, the Fed could cut rates by 50 basis points instead of the 25 it's expected to. "I'm pretty sure 25 basis points is the minimum," Bazenese said.
Fed Chairman Christopher Waller said Friday that "the time is now" for the U.S. to begin a cycle of interest rate cuts. But he added that he remains open to discussions about the size and pace of the cuts, emphasizing the need for flexibility in the current economic environment.
Traders are betting on a 25 basis point rate cut in September at 73%, according to CME Group's FedWatch tool. At the same time, the probability of a more aggressive 50 basis point rate cut has fallen to 27%, after briefly jumping to 51% immediately after the economic report.
How exactly the Fed will respond to the current economic slowdown remains an open question. Investors are bracing for turbulent weeks ahead, with every statement and action from the Fed closely scrutinized for its impact on the future of the economy and the market.
"I still believe the Fed will stop at 25 basis points," said Tony Roth, chief investment officer at Wilmington Trust in Radnor, Pennsylvania. "The Fed is not prepared for any sharp moves or panic at this point," he said. Major Indexes Continue to Fall
Wall Street's major indexes ended the week with significant losses. The Dow Jones Industrial Average (.DJI) fell 410.34 points, or 1.01%, to 40,345.41. The S&P 500 (.SPX) fell 94.99 points, or 1.73%, to 5,408.42. The Nasdaq Composite (.IXIC) lost 436.83 points, or 2.55%, to close at 16,690.83.
The decline affected the shares of the largest tech companies, which dragged the indexes down. The so-called Magnificent Seven suffered heavy losses: Nvidia (NVDA.O) shares fell by 4%, Tesla (TSLA.O) by 8.4%, Alphabet (GOOGL.O) lost 4%, Amazon (AMZN.O) fell by 3.7%, Meta (an organization banned in Russia) fell by 3.2%, Microsoft (MSFT.O) fell by 1.6%, and Apple (AAPL.O) showed a decline of 0.70%.
Additional pressure on the market was exerted by a sharp drop in Broadcom (AVGO.O) shares, which fell by 10.4%. The chipmaker presented a revenue forecast for the fourth quarter, which was below analysts' expectations. The company cites weak demand in the broadband segment, which has increased negative sentiment in the market.
Investors continue to monitor the Fed's next moves, assessing the impact of a possible rate cut on the market. However, for now, most market participants expect a subdued policy and a moderate rate cut at the next meeting, which leaves room for surprises and increased volatility in the coming days.
The tech sector was hit again, especially among chip makers. Marvell Technology (MRVL.O) shares fell 5.3%, while Advanced Micro Devices (AMD.O) shares closed down 3.7%. The Philadelphia SE Semiconductor Index (.SOX), which tracks semiconductor stocks, also failed to avoid falling, finishing down 4.5%. This was the index's sharpest weekly decline since March 2020.
Super Micro Computer (SMCI.O) shares fell 6.8% after J.P. Morgan Stanley analysts said the stock price of the company was 1.5%. Morgan downgraded the stock to neutral from overweight, a move driven by a reassessment of expectations for the AI server maker's prospects.
On the New York Stock Exchange, decliners significantly outnumbered gainers by 3.08 to 1. On the Nasdaq, the trend was even more pronounced: 3,183 stocks fell against 1,006 that advanced, for a 3.16 to 1 ratio in favor of decliners.
Total trading volume on U.S. exchanges was about 11.8 billion shares, above the average of 10.7 billion shares over the past 20 trading days. The increase in volume may indicate increased volatility and investor concerns about the future outlook for the market.
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