The US stock market suffered its biggest weekly drop since March 2023. This was due to weaker than expected economic data, and cautionary statements by Federal Reserve officials.
S&P500 dropped by 1.7% Friday. This brings its loss total for the past week up to 4.2%.
Nasdaq, the tech-dominated stock index, fared worse. It recorded its biggest weekly drop since January 2022. Down 5.8% and a fall of 2.6% on just Friday.
A weaker than expected payroll and renewed fears of an economic slowdown sparked the downturn.
The US added 142,000 new jobs in August. This was less than the 160,000 predicted by analysts, but still more than the 89,000 newly created jobs that were revised downwards in July.
The unemployment rate fell to just 4.2%.
Economic worries continue to persist despite the fall in tech stocks
The sell-off was mainly impacted by large-cap technology stocks. Dropping tech stocks had a major impact on the market. The Nasdaq Composite saw its value drop by 5.8% for the entire week.
The Federal Reserve’s key officials made comments that further dampened investor confidence. They suggested an approach of caution to rate reductions in the months ahead.
Fed Governor Christopher Waller, and New York Fed president John Williams have both stated that they may consider several rate reductions throughout the year in response to lower inflation and signs of an easing labour market.
Waller’s comment that the Fed can cut rates even more aggressively, if necessary, sparked concern, leading to an increase in US Treasuries.
Treasury yields drop as market reacts to economic data
The yield of the 2-year Treasury Bond, which changes in interest rates are sensitive to, fell by 0.09 percentage point to 3.66%.
The yield on the 10-year Treasury Bond benchmark fell by 0.01 points, to 3.72%.
The drop in yields, which is inversely proportional to the price of the asset, reflects the growing demand from investors for safe haven assets as they become more concerned about the economy’s outlook.
The dollar index which measures the US dollar against a basket global currencies also rose by 0.1%.
Investors continued to assess the impact of weaker economic indicators. The yen rose to Y=142.4 – its highest level since January.
Rate cuts are priced in the markets, but market expectations can fluctuate
The Federal Reserve was uncertain about its next move despite the market’s cautious attitude.
The futures market showed traders were reducing their expectations of a cut in the 50 basis points following the employment report. However, the volatility was still present.
The swap markets showed that rates would be cut by nearly 4 and half quarter points at the end of this year. This was slightly higher than expected before payroll data.
In a speech last month, Fed Chairman Jay Powell highlighted the fact that any decisions on rate reductions would closely be tied to economic statistics.
The Federal Reserve will be closely monitoring inflationary pressures and labour market trends to decide the timing and pace of any monetary ease.
European and Asian markets are following the US lead
Global markets felt the impact of Wall Street’s decline. The Stoxx Europe600 fell 1.1%, following Wall Street.
The Cac 40 in France and the Dax index in Germany also experienced significant drops, with 1,1% and 1.5%, respectively.
The UK’s FTSE 100 ended the week with a 0.7% decline.
The Topix index in Japan closed at 0.9% less than the previous day, while South Korea’s Kospi fell 0.8% and China’s CSI 300 index by 0.8%.
Global market reactions highlight broader fears about an economy slowdown. This is especially true when the US and China, the world’s two largest economies, show signs of weakness.
Prices hit an all-time low as concerns about demand rise
The oil markets were also under pressure, as crude futures fell to the lowest level of the year even though the Opec+ coalition agreed to postpone planned production increases.
Brent crude (the international benchmark) fell by 2.5%, to $70.90 a barrel. West Texas Intermediate, however, lost 2.6% and closed at $67.37.
Oil prices are dropping due to concerns about a slowing demand worldwide, which is exacerbated in part by economic signs in the US as well as China.
Opec+’s decision to postpone production by two months did not suffice to alleviate concerns over declining demand.
Markets to face uncertain future
Investors will continue to assess the impact of recent economic data, and Federal Reserve next steps.
Some analysts claim that the reaction of the stock market to the employment data was an overreaction. Others warn, however, that there is still a real risk that an economic downturn will occur.
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