U.S. stocks experienced a significant sell-off for the second straight session on Friday, as the Nasdaq Composite entered correction territory. The downturn was triggered by a softer-than-expected jobs report, fueling fears of an impending recession.
The Labor Department reported that nonfarm payrolls increased by only 114,000 jobs last month, well below the forecasted 175,000 and far short of the 200,000 needed to keep pace with population growth. The unemployment rate climbed to 4.3%, nearing a three-year high. This data heightened concerns about a rapidly slowing economy and raised questions about the Federal Reserve’s decision to keep interest rates steady during its recent policy meeting.
Expectations for a 50 basis points rate cut at the Fed’s September meeting surged to 69.5%, up from 22% in the previous session, according to CME’s FedWatch Tool.
“The jobs number is the big headline, and it signals a rational shift where bad economic news is recognized as bad,” said Lamar Villere, portfolio manager at Villere & Co. “The Fed is expected to cut rates, but the concern now is whether they waited too long, and if we are heading into a recession.”
The weak jobs data also triggered the “Sahm Rule,” a historically accurate recession indicator. Consequently, the Dow Jones Industrial Average fell 610.71 points, or 1.51%, to 39,737.26, the S&P 500 lost 100.12 points, or 1.84%, to 5,346.56, and the Nasdaq Composite dropped 417.98 points, or 2.43%, to 16,776.16. These declines confirmed a correction for the Nasdaq Composite, which is down over 10% from its July closing high due to concerns about high valuations amid a weakening economy.
The S&P 500 closed at its lowest level since June 4, with both the S&P and the Dow experiencing their largest two-day slides since March 2023. The Russell 2000 index slumped 3.52%, closing at a three-week low, marking its biggest two-day drop since June 2022. Chip stocks continued their decline, with the Philadelphia SE Semiconductor Index closing at a three-month low after its largest two-day slide since March 2020.
Despite the overall market decline, Apple rose 0.69% after reporting better-than-expected third-quarter iPhone sales and forecasting further gains, driven by AI advancements. Defensive sectors such as consumer staples, utilities, and real estate were the only gainers, while the consumer discretionary sector led declines, heavily impacted by Amazon’s drop.
The CBOE Volatility Index, Wall Street’s “fear gauge,” hit 29.66, its highest level since March 2023, before closing at 23.39. Some investors viewed the sell-off as a buying opportunity, with UBS strategist Jonathan Golub noting that market returns are often greatest when the VIX is elevated.
Declining issues outnumbered advancers by a ratio of 2.92-to-1 on the NYSE and 4.52-to-1 on the Nasdaq. The S&P 500 recorded 62 new 52-week highs and 15 new lows, while the Nasdaq logged 34 new highs and 297 new lows. Volume on U.S. exchanges totaled 14.75 billion shares, compared to the 20-day average of 11.97 billion.
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