Wall Street Plunges on Dismal Jobs Report, Sparking Fears of Fed Rate Cut Delay
Wall Street experienced a sharp decline on the last trading day of the week, with all major indices in the red at noon in New York. This downturn was fueled by a cooler-than-expected July jobs report, which rattled risk sentiment and sparked concerns that the Federal Reserve may have erred in delaying a rate cut until September.
Key Takeaways:
- Disappointing Jobs Report: The nonfarm payrolls figure slowed to 114,000 in July, a significant decline from June’s 180,000 and well below the anticipated 150,000. The unemployment rate also unexpectedly rose from 4.1% to 4.3%, further dampening market sentiment.
- Rate Cut Probabilities Surge: Following the weak jobs report, market-implied probabilities for a 50-basis-point cut in September have soared to 73%, according to the CME Group FedWatch tool. This suggests a growing expectation that the Fed will act more decisively to stimulate the economy.
- Tech Sector Takes a Hit: The tech-heavy Nasdaq 100 entered a correction phase, having fallen more than 10% since its July peak. Even mega-cap, high-quality tech stocks, often seen as a safe haven, suffered losses. Notably, the “Magnificent Seven” tech giants collectively lost over $300 billion in market value on Friday alone, with only Apple Inc. bucking the trend due to its strong earnings report.
- Volatility Reigns: The CBOE Volatility Index (VIX), known as the market’s fear gauge, surged over 30%, reaching high-20 levels. This indicates a significant rise in uncertainty and risk aversion among investors.
- Small Caps Suffer: Small-cap stocks, being highly sensitive to economic fundamentals, were hit hardest. The Russell 2000 plummeted over 3%, extending its decline following a 3.4% loss on Thursday.
A Deeper Dive into Market Mayhem
The weak jobs report amplified fears about a slowing economy and fueled a broad flight-to-quality sentiment. Investors sought shelter in safer assets, leading to significant gains in Treasuries. The iShares 20+ Year Treasury Bond ETF (TLT) rallied 2.9%, its strongest performance since the U.S. regional banking crisis in March 2023.
The Japanese yen also gained significantly, reflecting safe-haven demand, with the Invesco CurrencyShares Japanese Yen Trust (FXY) rising 1.8%.
However, gold, often considered a safe-haven asset, edged down slightly by 0.6%, indicating that investors may be seeking more liquid assets in this volatile market environment.
Oil prices fell sharply, dropping more than 4% for the day, with West Texas Intermediate (WTI) light crude retreating to $72 a barrel. This downtrend can be attributed to concerns about slowing global economic growth, which could dampen demand for oil.
Bitcoin, also experiencing a turbulent period, fell over 3% amid the broader market sell-off.
Examining Individual Stocks and Sectors
The Consumer Discretionary and Technology sectors were the worst performers, reflecting investor anxieties about slowing economic growth and potential corporate earnings disappointments. Semiconductor stocks particularly suffered, with the iShares Semiconductor ETF (SMH) plummeting over 5%, marking its worst performance since March 2020.
Nvidia Corp., already under investigation by the U.S. Department of Justice for potential antitrust violations, fell an additional 3.4% on Friday, following a 6.7% decline on Thursday.
Several stocks reacted to earnings announcements:
- Amazon.com Inc. fell nearly 10% after reporting its second-quarter earnings, despite strong growth in its Amazon Web Services (AWS) division.
- Apple Inc. bucked the negative trend, rising 2.9% after posting solid earnings results.
- Block Inc. rose 0.5%, defying the market downturn.
- Booking Holdings Inc. dipped around 8% after releasing its second-quarter results.
- Chevron Corp. declined 3.2% despite strong earnings, indicating broader market pressures.
- Cloudflare Inc. soared over 7% on positive earnings news.
- Coinbase Global Inc. fell 2.8% despite reporting a better-than-expected quarter.
- DraftKings Inc. shed over 9% after its earnings announcement.
- EOG Resources Inc. dropped 1.9% despite a strong earnings report.
- Exxon Mobil Corp. slipped 0.6% after reporting earnings.
- Intel Corporation plunged nearly 28% following a dismal earnings report.
- MercadoLibre Inc. rallied 11% on strong second-quarter earnings.
- Microchip Technology Incorporated declined over 8% after releasing its earnings results.
- Opendoor Technologies Inc. plummeted around 10% after reporting its quarterly results.
- Twilio Inc. jumped over 10% on positive earnings news.
- Vertex Pharmaceuticals Inc. fell 2% after reporting earnings.
Friday’s Performance in US Major Indices and ETFs
| Major Indices | Price | 1-day Chg % |
|---|---|---|
| Dow Jones | 39,492.36 | -2.1% |
| S&P 500 | 5,321.21 | -2.3% |
| Nasdaq 100 | 18,355.31 | -2.8% |
| Russell 2000 | 2,110.14 | -3.4% |
Updated at 1:05 p.m. ET
The following ETFs also experienced significant movement:
- SPDR S&P 500 ETF Trust (SPY) was down 2.2% to $531.13.
- SPDR Dow Jones Industrial Average (DIA) fell 1.9% to $395.39.
- Invesco QQQ Trust Series (QQQ) dropped 2.6% to $447.80.
- iShares Russell 2000 ETF (IWM) fell 3.5% to $208.99.
Sector-wise, the Consumer Staples Select Sector SPDR Fund (XLP) outperformed, rising 0.1%, while the Technology Select Sector SPDR Fund (XLK) tumbled by 3.4%.
Looking Ahead
The current market volatility underscores the growing concerns about the economic outlook and the Fed’s future policy decisions. Investors will carefully analyze the upcoming economic data releases for further clues about the direction of the economy and the potential path of interest rates. The coming weeks will be crucial for discerning whether the current downturn is a temporary blip or the start of a more significant correction.
