Stocks tumbled toward their worst weekly loss since March 2023, with bonds fluctuating as renewed concerns over a slowing US economy and a hesitant Federal Reserve gripped investors. A disappointing jobs report fueled uncertainty, raising fears that the central bank may not act quickly enough to prevent further economic cooling.
The S&P 500 dropped 1.5%, while the Nasdaq 100 took a sharper hit, falling 2.4%. August payroll data showed a shortfall of 23,000 jobs compared to expectations, reinforcing concerns about the labor market’s health. Meanwhile, Treasury two-year yields slid as much as 15 basis points before paring losses. Wall Street’s bets on a half-point Federal Reserve rate cut faded after gaining some traction when Fed Governor Christopher Waller mentioned he was “open-minded” to a larger cut.
“Financial markets are now focused on how aggressively the Fed will ease rates and whether the economy is decelerating too quickly,” said Scott Wren, senior global market strategist at Wells Fargo Investment Institute. “Short-term volatility is likely to persist as investors weigh these factors.”
The US labor market showed signs of strain as nonfarm payrolls increased by 142,000 in August, leaving the three-month average at its lowest since mid-2020, according to the Bureau of Labor Statistics. The unemployment rate dipped to 4.2%, marking the first drop in five months, reflecting a reversal in temporary layoffs.
Though previous payroll reports hit stocks harder, this marks the first time since 2012 that the S&P 500 has seen back-to-back losses of at least 1.5% following labor data releases.
All sectors of the S&P 500 finished lower, with technology stocks leading the decline. The index’s most influential sector, including the “Magnificent Seven” megacaps, slid 3.1%. Nvidia fell by 4%, while Broadcom plunged 8% after issuing a weaker-than-expected forecast. The Dow Jones Industrial Average lost 0.8%, and the Russell 2000, a benchmark for smaller companies, dropped 1.6%.
On the bond side, Treasury 10-year yields edged down by one basis point to 3.72%, while the US dollar wavered.
“Markets are reeling as recession fears grow following the weaker-than-expected jobs report,” said Jose Torres, senior economist at Interactive Brokers. “Investors are beginning to question the sustainability of 2025 earnings estimates.”
Torres further noted that while this month’s jobs report hasn’t yet triggered a 50 basis-point cut from the Federal Reserve, upcoming inflation data next week could further sway market sentiment.
“The November Fed meeting could be more pivotal,” Torres added. “Fed watchers anticipate a 50 basis-point cut as economic data may worsen before improving.”
Analysis: For investors, the latest labor market data has prompted deeper concerns over whether the Federal Reserve will act swiftly enough to counter the economic slowdown. The S&P 500’s recent losses reflect increased caution, particularly in the tech sector, as elevated valuations remain sensitive to any signs of economic weakness.
Given the S&P 500’s significant pullback and the heightened volatility, investors might find opportunities in defensive sectors such as healthcare, utilities, or consumer staples. These sectors tend to perform better during periods of economic uncertainty and could offer some protection against further downside in equity markets. For those seeking to capitalize on potential rate cuts, fixed income assets such as bonds may become more attractive, especially as yields decline.
If the Fed does opt for larger-than-expected rate cuts in the coming months, the resultant policy shift could support equities over the long term, particularly if inflation continues to moderate and the labor market stabilizes. Investors anticipating such an outcome could look to rebalance portfolios ahead of further easing from the central bank.
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