U.S. stocks fell sharply on Friday after a weaker-than-expected jobs report stoked concerns the economy could be slowing more quickly than analysts had expected.
The Dow Jones Industrial Average, a benchmark index of 30 major U.S. companies, fell more than 900 points in morning trading on Friday and closed down 750 points, or 1.9 percent, by midday.
The S&P 500 index fell 141 points, or 2%, while the tech-heavy Nasdaq index slid 2.2%.
Stock markets have generally risen on the back of positive economic data since the start of 2023 as employment levels have continued to beat expectations despite the Federal Reserve’s interest rate hikes aimed at slowing the economy.
Following strong growth in gross domestic product and the labor force earlier this year, the economy is now showing signs of slowing, suggesting the Fed may be nearing the end of its tightening cycle.
The Labor Department’s employment report released Friday showed the unemployment rate rose 0.2 percentage points to 4.3% in July from 4.1% in June, the highest level since October 2021.
The number of employed people increased by 114,000 in July, well below the 175,000 that analysts had expected.
The employment report revised down the number of new employees in June by 27,000, continuing the trend of downward revisions.
Markets are widely expecting the Fed to start cutting interest rates when it next meets in September. Rates have been hovering at a lofty 5.25% to 5.5% level, where the central bank has kept them for the past year due to strong economic data.
The CME FedWatch forecasting algorithm, based on futures contract prices, projected about an 80% chance of a 50 basis point rate cut in September instead of a quarter point cut as of Friday afternoon.
Interest rate cuts Generally precedes Recession designations were implemented in late 2019, late 2007 and early 2001 as the Fed seeks to get ahead of cyclical downturns by stimulating the economy with easier borrowing costs.
“Wait until September [to cut interest rates] “It unnecessarily increases the risks of a recession,” former New York Federal Reserve President Bill Dudley warned in a Bloomberg opinion piece earlier this month.
Dudley noted that the three-month average unemployment rate is up 0.43 percentage points from its recent low, on the verge of triggering a recessionary signal known as the thumb rule.
“[It’s] “It is very close to the 0.5 threshold that always signals a U.S. recession, as identified by the Thumb rule,” he wrote.
