After the government’s monthly employment report revealed labor conditions remained tight last month despite a slowdown in hiring, U.S. stocks crashed on Friday in their worst day since the depths of September’s sell-off, dash any hopes the Federal Reserve will veer off its aggressive rate hiking path.
Last month, the US economy created 263,000 new jobs, bringing the unemployment rate down to 3.5%. According to consensus forecasts compiled by Bloomberg, economists anticipated a 255,000 increase in payrolls and that the unemployment rate would remain unchanged at 3.7%.
While the Dow Jones Industrial Average (DJI) lost 630 points, or 2.1%, the S&P 500 (GSPC) fell 2.8%. With a loss of 3.8%, the Nasdaq Composite (IXIC) led the way lower. Treasury yields increased in the bond market at the same time, with the benchmark 10-year note returning to a level around 3.9% and the rate-sensitive 2-year yield over 4.3%.
After a brief two-day recovery that started the month lifted all three major averages more than 5% off their 2022 lows, Friday’s sell-off erased a large portion of the week’s gains. Nevertheless, American stocks ended the week in the black, breaking a three-week losing streak. Since Monday, the S&P 500 was up 1.5%, the Dow was up 2%, and the Nasdaq was up 0.7%.
According to Mike Loewengart, head of model portfolio construction at Morgan Stanley’s Global Investment Office, “the market’s bearish reaction may be a sign that investors are processing the likelihood that the Fed’s aggressive approach won’t change in the near term.” The next Fed decision won’t be made until early November, so there will be plenty of new data to analyze, not the least of which is next week’s inflation measure.
Especially after a string of poor economic reports revealed a dramatic decline in industrial activity and fewer job opportunities, investors were betting that evidence of a cooling labor market would push Federal Reserve policymakers to reverse course on their aggressive rate-hiking path. But a lot of Wall Street analysts have said that expecting a flip to happen soon is premature, and this jobs report seems to support that view.