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Financial Markets 09/06 15:34
NEW YORK (AP) -- Another rout hit Wall Street Friday, with formerly
high-flying technology stocks again taking the brunt, after a highly
anticipated update on the U.S. job market came in weak enough to add to worries
about the economy.
The S&P 500 dropped 1.7% to close out its worst week since March 2023.
Broadcom, Nvidia and other tech companies led the market lower as worries
continue that their prices soared too high in the boom around artificial
intelligence, and they dragged the Nasdaq composite down by a market-leading
2.6%.
The Dow Jones Industrial Average dropped 410 points, or 1%, after erasing a
morning gain of 250 points.
Sharp swings also hit the bond market, where Treasury yields tumbled,
recovered and then fell again after the jobs report showed U.S. employers hired
fewer workers in August than economists expected. It was billed as the most
important jobs report of the year, and it showed a second straight month where
hiring came in below forecasts. It also followed recent reports showing
weakness in manufacturing and some other areas in the economy.
Such a softening of the job market is actually just what the Federal Reserve
and its chair, Jerome Powell, have been trying to get in order to stifle high
inflation, "but only to a certain extent and the data is now testing Chair
Powell's stated limits," said Scott Wren, senior global market strategist at
Wells Fargo Investment Institute.
Friday's data raised questions about how much the Federal Reserve will cut
its main interest rate by at its meeting later this month. The Fed is about to
turn its focus more toward protecting the job market and preventing a recession
after keeping the federal funds rate at a two-decade high for more than a year.
Cuts to interest rates can boost investment prices, but the worry on Wall
Street is that the Fed may be moving too late. If a recession does hit, it
would undercut corporate profits and erase the benefits from lower rates.
"All is not well with the labor market," said Brian Jacobsen, chief
economist at Annex Wealth Management. "The Fed wanted the labor market to come
into better balance, but any balancing act is unstable."
Still, the jobs report did include some encouraging data points. For one,
the unemployment rate improved to 4.2% from 4.3% a month earlier. That was
better than economists expected. And even if August's hiring was weaker than
forecast, it was still better than July's pace.
Christopher Waller, a member of the Fed's board of governors, said in a
speech after the jobs report's release that "I believe we should be data
dependent, but not overreact to any data point, including the latest data."
"While the labor market has clearly cooled, based on the evidence I see, I
do not believe the economy is in a recession or necessarily headed for one
soon," he said.
While Waller said he thinks a "series of reductions" to rates is appropriate
given that a slowing job market now looks like the bigger threat for the
economy than high inflation, he said the ultimate pace and depth of those cuts
is still to be determined.
All the uncertainty sent Treasury yields on a wild ride in the bond market
as traders tried to handicap the Fed's next moves.
The two-year Treasury yield initially fell as low as 3.64% after the release
of the jobs report, before quickly climbing back above 3.76%. It then dropped
back to 3.66% following Waller's comments, down from 3.74% late Thursday.
Wells Fargo Investment Institute's Wren said he was surprised by the size of
markets' swings. While data has clearly shown a slowdown in the economy, he's
still forecasting growth to continue, "and it's not the end of the world." He
cautioned investors against panicking and selling their investments in
knee-jerk reactions.
Despite its dismal week, the S&P 500 remains just 4.6% below its all-time
high set in July. It's also still up 13.4% for 2024 so far, which counts as a
good year.
A big reason for Friday's sharp drops was weakness for some big tech stocks
that had been benefiting from the AI boom.
Broadcom tumbled 10.4% despite reporting profit and revenue for the latest
quarter that were above analysts' forecasts, thanks in part to AI. The chip
company said it expects to make $14 billion in revenue this quarter, which was
slightly below analysts' expectations of $14.11 billion, according to FactSet.
Other chip companies also fell, including a 4.1% drop for Nvidia. After
soaring earlier this year as its revenue surged on the AI frenzy, Nvidia's
stock has been shaky since mid-July as investors question whether they took it
too high. That's even though Nvidia has continued to top analysts' expectations
for growth.
"Earnings growth is going to slow from an incredibly high rate to something
slower," Wren said about Big Tech, "but it's not going to be terrible."
On the winning side of Wall Street was U.S. Steel, which rose 4.3% after the
CEO of rival Cleveland Cliffs told MSNBC that his company would still be
interested in acquiring U.S. Steel if the White House were to block its
proposed sale to Japan's Nippon Steel.
All told, the S&P 500 fell 94.99 points to 5,408.42. The Dow dropped 410.34
to 40,345.41, and the Nasdaq composite lost 436.83 to 16,690.83.
In stock markets abroad, indexes fell across much of Europe and Asia.
Trading was halted in Hong Kong because of a typhoon.
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AP Business Writers Yuri Kageyama and Matt Ott contributed.
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