Stock Exchange – Federal Reserve Rate Cut Speculation Rises After Weak Job Report

Stock Exchange – Stocks tumbled on Friday due to escalating concerns that the U.S. economy might be weakening under the pressure of high interest rates designed to combat inflation.

S&P 500 and Major Indices Decline Sharply

The S&P 500 sank 1.8%, marking its first consecutive losses of at least 1% since April. The Dow Jones Industrial Average plummeted 610 points, or 1.5%, while the Nasdaq composite dropped 2.4%. This sell-off rippled across global markets, circling back to Wall Street.

Job Market Report Fuels Fears

A report indicating that U.S. hiring slowed significantly more than expected in the last month heightened market fears. This news, coupled with a series of disappointing economic reports from the previous day, such as a decline in U.S. manufacturing activity, contributed to the market’s downturn.

Interest Rate Concerns Intensify

Earlier in the week, U.S. stock indices had surged to their best performance in months after Federal Reserve Chair Jerome Powell suggested that inflation had slowed sufficiently to consider rate cuts in September. However, the latest economic data has prompted worries that the Fed may have kept interest rates at a two-decade high for too long. Economists now suggest that a mere quarter-point rate cut in September may be insufficient to prevent a recession.

Market Betting on Rate Cuts

Traders are now forecasting a 70% probability that the Fed will cut its main interest rate by half a percentage point in September, based on CME Group data. This expectation persists despite Powell’s recent comments indicating that such a significant reduction was not currently being considered.

Economic Outlook Remains Uncertain

Despite current fears, the U.S. economy is still growing, and a recession is not inevitable. The Fed has acknowledged the delicate balance it must maintain: being overly aggressive with rate hikes could stifle the economy, while being too lenient could allow inflation to persist.

Mixed Reactions to Job Data

Brian Jacobsen, chief economist at Annex Wealth Management, commented on the situation, stating, “The Fed is seizing defeat from the jaws of victory. Economic momentum has slowed so much that a rate cut in September will be too little and too late. They’ll have to do something bigger than a traditional cut of a quarter of a percentage point to avert a recession.”

Technology Sector Under Pressure

Before the jobs report was released, several major technology companies reported disappointing earnings, further contributing to market losses. Amazon’s stock fell 8.8% after it reported lower-than-expected revenue for the latest quarter and provided a subdued profit forecast for the upcoming summer.

Intel Faces Historic Losses

Intel experienced its worst trading day in 50 years, with its stock plunging 26.1% following a significant earnings miss and a suspension of dividend payments. The company also projected a loss for the third quarter, contrary to analyst expectations of a profit.

Apple Remains Resilient

In contrast, Apple saw a modest gain of 0.7%, as its earnings and revenue exceeded expectations.

Tech Stocks Drag Nasdaq into Correction

The recent downturn in technology stocks, which had previously driven the S&P 500 to multiple record highs this year, has pushed the Nasdaq composite down by 10% from its recent peak, a level referred to as a “correction.”

Broad Market Reactions

Other sectors of the stock market, including smaller companies that had begun to recover last month, also suffered significant losses on Friday. The Russell 2000 index of smaller stocks fell by 3.5%, outpacing broader market declines.

Significant Drops in Major Indices

Overall, the S&P 500 fell 100.12 points to 5,346.56. The Dow dropped 610.71 points to 39,737.26, and the Nasdaq composite decreased by 417.98 points to 16,776.16.

Bond Market and Treasury Yields

In the bond market, Treasury yields declined sharply as traders anticipated deeper rate cuts from the Federal Reserve. The yield on the 10-year Treasury fell to 3.79% from 3.98% on Thursday, down from 4.70% in April.

Global Market Reactions

In international markets, Japan’s Nikkei 225 dropped 5.8% following an interest rate hike by the Bank of Japan, which increased the value of the yen against the U.S. dollar, potentially harming exporters and dampening tourism.

Chinese stocks also fell as investors were disappointed with the government’s incremental measures to stimulate growth, rather than the broader stimulus they had hoped for. European stock indices dropped by more than 1%.

Volatile Commodity Prices

Commodity prices have also been volatile this week. Oil prices surged after the killing of leaders of Hamas and Hezbollah raised concerns about disruptions in crude supply from the Middle East. However, prices fell back later in the week on fears of reduced demand due to economic weakness. U.S. crude oil prices ended the week below $74 per barrel after starting above $77.

For more up-to-date crypto news, you can follow Crypto Data Space.