Stock market today: Dow drops 600 on weak jobs data as a global sell-off whips back to Wall Street

Stocks tumbled on Friday as investors worried that a stubbornly sturdy jobs market might be pushing the US economy towards a difficult downturn as the Federal Reserve raises interest rates to rein in inflation.

The S P 500 fell 1.8 per cent for its first back-to-back losses of at least 1 per cent since April, the Dow Jones Industrial Average plunged 610 points, or 1.5 per cent, and the Nasdaq composite dropped 2.4 per cent as a sell-off in stocks lashed itself all the way around the world back to Wall Street.

A then-much-more-than-expected slowdown in hiring by US companies last month sent markets reeling as investors worried about the impact of slowing economic growth. US stock prices and bond yields plummeted in the aftermath of the report, days after a raft of disappointing US economic reports a day earlier, including a further deterioration in US factory activity, which has been one of the areas hit hardest by high rates.

Just a couple days ago, US stock indexes soared to their best day in months when Federal Reserve Chair Jerome Powell gave the clearest sign that, with inflation finally cooling, rate cuts could come as soon as next month.

Now, fears that the Fed has held its key interest rate too high for too long are growing. A rate cut would make it cheaper for US households and companies to borrow, a shot in the arm for the economy, but it takes months to a year for the effects to be fully felt.

‘The Fed is snatching defeat from the jaws of victory,’ said Brian Jacobsen, chief economist at Annex Wealth Management: ‘Economic momentum has slowed so much that a September cut will be too little and too late. They’ll have to do something bigger than’ a quarter point to avert a recession.

Speculators see a 70 per cent chance that the Fed will lower its benchmark rate by 50 basis points in September even if Powell said Wednesday ‘that’s not something we’re thinking about right now’. ― Data from CME Group shows that traders are betting on a 70 per cent probability that the US central bank will reduce its main interest rate by half a percentage point in September, even though the Fed’s new boss Powell said Wednesday that such a deep reduction ‘is not something we’re thinking about right now’. ―

After all, the US economy is still growing, and a recession is hardly guaranteed. From the moment it began jacking up rates in March 2022, the Fed has been telling us it’s walking a tightrope: too much and you choke the economy, too little and you give the inflation problem more to feed on.

While refusing to declare victory on either the jobs front or on inflation – which was before Thursday’s dismal economic news – Powell said Fed policymakers ‘have a lot of room to respond if we were to see weakness’ in the job market following the Fed’s aggressive hike of its key rate.

‘Yes, that’s very supportive of the narrative that the economy is weakening. But I think the market is overdoing it at this point and people are freaking out too much about the now-’ Nate Thooft, senior portfolio manager at Manulife Investment Management, told the Financial Times. ‘Yes, the economy is weakening, but I don’t think the evidence is there yet that the data to date is a sure sign of the death of the economy.’

Stocks in the US had looked ready for a losing session anyway Friday before the ugly jobs report landed on Wall Street.

There, a long list of big tech firms posted lacklustre earnings reports – a continuation of a generally unpleasant run that began last week with numbers from Tesla and Alphabet.

Amazon tumbled 8.8 per cent after the retail and tech behemoth provided weaker-than-expected revenue for the latest quarter and issued a profit forecast for the summer that similarly failed to live up to analysts’ expectations.

Intel fell yet more, 26.1 per cent – its worst day in half a century – after the second largest chip company by market value reported that its profit for the latest quarter missed estimates. It also announced that it would, reported the Los Angeles Times, ‘suspend its quarterly dividend and forecast a loss for the third quarter, when analysts had projected a profit’.

Apple held steadier, up 0.7%, after reporting better profit and revenue than expected.

Apple and six other Big Tech stocks in what Wall Street calls the ‘Magnificent Seven’ have powered the S ̳P ̳ 500 to dozens of records this year on growing enthusiasm about artificial-intelligence technology. But that wind at their backs suddenly died down in September as investors grown fearful that it would hurt take prices too high.

Friday’s tech-sector selloff sent the Nasdaq composite down 10 per cent from its all-time peak set last month – a decline traditionally called a ‘correction’.

Helpfully for Wall Street, sectors of the stock market crushed by high interest rates began rebounding hard last month even as tech stocks were spectacularly retreating, especially smaller companies. But they too swooned on Friday as worries took hold that a weak economy might derail their profits.

The Russell 2000 index of smaller stocks lost 3.5 per cent, worse than the rest of the market.

In the end, the S&P 500 dropped 100.12 points to 5,346.56, the Dow came down 610.71 to 39,737.26, and the Nasdaq composite fell 417.98 to 16,776.16.

Yields on Treasuries sank in the bond market, with traders anticipating further rate cuts by the US Federal Reserve. The yield on the 10-year Treasury dropped from 3.98 per cent late Thursday, and from 4.70 per cent in April.

Overseas, stocks in Japan’s Nikkei 225 dropped 5.8 per cent. It’s been struggling after the Bank of Japan raised its benchmark interest rate on Wednesday, a move that boosted the Japanese yen against the US dollar and could erode profits for exporters. It could also deflate a boom in tourism from abroad.

Chinese stocks tumbled as investors digested the government’s latest efforts to revive demand through a raft of piecemeal measures rather than the hoped-for injections of broader stimulus, while stock indexes fell by more than 1 per cent range across much of Europe.

Commodity prices also had a rollercoaster ride this week: a spike in the price of oil came after the killings of two leaders of terrorist middle eastern groups, Hamas and Hezbollah, rejuvenated fears of a wider Middle East conflict strangling the world’s oil supply.

However, prices retreated Thursday and Friday as investors worried that a slowing economy would burn less crude. A barrel of benchmark US crude on Friday again fell below $74 after opening the week above $77.