US benchmark equity indexes experienced significant declines on Friday following the release of disappointing economic data, which indicated that the economy added fewer jobs than anticipated in August. The Nasdaq Composite fell sharply by 2.6%, closing at 16,690.8. Meanwhile, the S&P 500 also dipped by 1.7%, settling at 5,408.4, while the Dow Jones Industrial Average recorded a loss of 1%, finishing at 40,345.4.
Apart from the real estate sector, which remained stable, all other sectors encountered losses, with communication services and consumer discretionary being the hardest hit. Looking back at the week, the Nasdaq plummeted 5.8%, followed by a retreat of 4.2% in the S&P 500, and a 2.9% decline in the Dow.
According to the Bureau of Labor Statistics, US nonfarm payrolls showed an increase of 142,000 jobs last month, which fell short of the consensus estimate of 165,000, as reported in a survey by Bloomberg. Concurrently, the unemployment rate decreased slightly to 4.2% from July’s 4.3%, aligning with analysts’ expectations for August. In a client note, TD Economics remarked, "Clearly, the labor market has cooled over the past year, but we feel there isn't enough evidence to suggest that the recent softening is the start of a more serious deterioration in underlying fundamentals.
Absent a change to this view, we expect three quarter-point rate cuts from the (Federal Reserve) by year-end." Market expectations for a 25-basis-point interest rate cut on September 18 surged to 69% on Friday from 60% the previous day. Conversely, the likelihood of a more drastic 50-basis-point reduction decreased to 31% from 40%, utilizing insights from the CME FedWatch tool. Interest rates reflected these sentiments, as the US two-year yield fell by 8.9 basis points to 3.66%, while the 10-year yield saw a marginal decline of one basis point, reaching 3.72%.
New York Fed President John Williams emphasized that it is now "appropriate" for the Federal Open Market Committee to initiate the easing of monetary policy. Additionally, Fed Governor Christopher Waller highlighted the significance of commencing the easing process later this month, stating, "It is likely that a series of reductions will be appropriate," though he acknowledged the difficulty in determining the pace of these rate cuts.
"I do not believe the economy is in a recession or necessarily headed for one soon," he added, maintaining a cautious optimism regarding economic conditions. In remarks made last month, Fed Chair Jerome Powell indicated that “the time has come” to commence easing monetary policy, although the timing and magnitude of the proposed rate cuts would be contingent upon forthcoming economic data. On the commodities front, West Texas Intermediate crude oil dropped by 1.4% to $68.18 per barrel, marking its trajectory towards a fourth consecutive weekly loss.
On Thursday, members of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) made a joint decision to extend their voluntary oil production cuts for an additional two months. ING analysts commented in a report on Friday that market sentiment remains negative amid ongoing concerns over demand, asserting that the oil market is expected to remain in surplus through 2025, suggesting that prices will likely stay under pressure unless OPEC+ implements long-term actions. In corporate news, Broadcom ($AVGO) suffered a significant drop of 10%, becoming the worst-performing stock on both the S&P 500 and the Nasdaq after the chipmaker provided a fiscal fourth-quarter revenue forecast that fell short of Wall Street expectations.
Similarly, electric vehicle manufacturer Tesla ($TSLA) recorded the second-largest decline across the two indexes, down by 8.5%. In contrast, DocuSign ($DOCU) shares increased by 4%, as the electronic signature firm raised its full-year revenue projections following better-than-expected fiscal second-quarter results. On the precious metals market, gold saw a decline of 0.7%, trading at $2,525.10 per troy ounce, while silver fell 3% to $28.23 per ounce.
The movements in these markets reflect broader economic conditions and investor sentiment as uncertainties loom over future monetary policy adjustments and economic stability..