In a significant turn of events, US benchmark equity indexes experienced a notable decline on Friday, highlighted by a disappointing jobs report which revealed that the economy added fewer jobs than the anticipated figures for August. The Nasdaq Composite plummeted by 2.6%, closing at 16,690.8, while the S&P 500 fell by 1.7% to settle at 5,408.4.
Concurrently, the Dow Jones Industrial Average saw a decrease of 1%, ending the day at 40,345.4. Notably, the real estate sector remained relatively unchanged, however, all other segments reported losses, with communication services and consumer discretionary leading the downward trend. For the week as a whole, the Nasdaq faced a steep decline of 5.8%, the S&P 500 receded by 4.2%, and the Dow experienced a drop of 2.9%.
This sharp decline in equities has raised eyebrows, especially in light of the labor market's current conditions, as outlined by the Bureau of Labor Statistics. The latest report indicated that total US nonfarm payrolls saw an increase of 142,000 jobs last month, falling short of the consensus estimate of a 165,000 boost, an assessment based on a survey by Bloomberg.
Additionally, the unemployment rate decreased slightly to 4.2%, down from 4.3% in July, aligning with analysts' expectations for August. "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," noted TD Economics in a communication to clients.
They expressed an expectation for three quarter-point rate cuts by the Federal Reserve by year-end, barring any unexpected shifts in current economic indicators. Market sentiment regarding interest rates shifted significantly on Friday, with the odds of a 25-basis-point cut on September 18 rising to 69%, up from 60% the previous day.
Conversely, the probability of a more aggressive 50-basis-point reduction saw a decrease to 31% from Thursday's 40%. This volatile environment reflects an evolving perspective on monetary policy, with the US two-year yield marking a decline of 9.1 basis points to 3.66%, while the 10-year rate nudged down one basis point to 3.72%. Comments from New York Fed President John Williams suggested that it is now "appropriate" for the Federal Open Market Committee to initiate a modification in its monetary policy approach.
Fed Governor Christopher Waller further emphasized the importance of commencing the easing process by the end of the month. He expressed that "it is likely that a series of reductions will be appropriate" but acknowledged the challenges surrounding the pace of potential rate cuts. "I do not believe the economy is in a recession or necessarily headed for one soon," he concluded. Earlier last month, Fed Chair Jerome Powell indicated that the "time has come" for interest rates to be reduced, although he clarified that the timing and scale of these reductions would greatly depend on forthcoming economic data. In commodities, West Texas Intermediate crude oil witnessed a drop of 1.5%, closing at $68.09 a barrel, marking its fourth consecutive weekly loss.
This decline followed the decision by certain members of the Organization of the Petroleum Exporting Countries and their allies, collectively known as OPEC+, to extend their voluntary oil output cuts for an additional two months. In a Friday report, ING suggested that "market sentiment is still negative given worries over demand," highlighting a surplus in the oil balance for 2025, suggesting ongoing pressure on prices unless longer-term corrective measures are taken by OPEC+. On a corporate front, shares of Broadcom ($AVGO) dived 10%, making it the worst performer on both the S&P 500 and Nasdaq indexes.
The semiconductor giant's fiscal fourth-quarter revenue outlook fell short of Wall Street expectations, contributing to the stock's sharp decline. Electric vehicle manufacturer Tesla ($TSLA) also faced a notable dip, down 8.5% on both indexes, reflecting ongoing concerns within the technology and automotive sectors. Conversely, DocuSign ($DOCU) enjoyed a 4% uptick, after the electronic signature firm slightly raised its full-year revenue outlook post a strong fiscal second-quarter performance that exceeded analysts' expectations. In precious metals markets, gold prices slipped 0.7% to settle at $2,525.10 per troy ounce, with silver also decreasing by 3%, closing at $28.24 per ounce.
This fluctuation in commodity prices paints a broader picture of market volatility amidst shifting economic indicators and corporate performances..