Wall Street stocks closed down for the third consecutive week on Friday, erasing all of their early gains on the release of the government’s latest employment report.
Employers reduced hiring in August, according to the data, which initially fueled cautious optimism that the Federal Reserve may not need to hike interest rates as forcefully in its continuing effort to combat inflation.
The advances, however, waned by mid-afternoon. The S&P 500 lost 33 points, or 1%, to close at 3,934, or 3,934 total. The benchmark index was up 1.3% in early trading.
The Dow Jones Industrial Average went from a 370-point gain to a 247-point loss. At 31,410, the blue chip index was down 0.8%. The Nasdaq composite index also turned negative, falling 1.3%. Additionally, smaller firm stocks declined, dragging the Russell 2000 index down 0.5%.
The most recent employment statistics at least provides markets comfort that a crucial inflation driver is moderating. The Labor Department announced on Friday that the U.S. economy created 315,000 jobs in August, a decrease from the 526,000 jobs gained in July and below the average of the previous three months. In August, the unemployment rate increased to 3.7% from 3.5% in July, as more individuals began looking for work.
The average hourly wage increased 5.2% in August compared to the same month a year ago, but slowed marginally from July to August. This is a positive indicator in the battle against inflation, since firms often pass on the cost of increased salaries to consumers via higher pricing.
Lisa Sturtevant, chief economist at Bright MLS, said in a note: “The slowdown in job growth in August may indicate that the Federal Reserve’s policies are beginning to have an effect.”
After the Fed chair’s comments on inflation and rate increases, markets are wary at 04:23
The weaker employment data might provide the central bank a cause to raise interest rates more slowly at its next policy meeting later this month, which is excellent news for Wall Street, which continues to be preoccupied with rate expectations.
“Today’s employment data was a step in the right direction, as the rate of job and pay growth has steadied,” said Matt Peron, Research Director at Janus Henderson Investors. However, we repeat that we are not yet out of the woods, as persistently robust wage rises might keep the Fed on an aggressive course.
There will be other price increases in the future.
According to CME Group, the Fed is likely to increase short-term interest rates by 0.75 percentage points at its next meeting. The Fed has already hiked rates four times this year. However, as a result of the most recent employment data, expectations for this three-quarter percentage point increase have plummeted from 75% on Thursday to 58% today.
David Kelly, chief global strategist at J.P. Morgan Asset Management, and other market observers anticipate the central bank to hike interest rates by 0.75 percentage points later this month.
Kelly said that indications of some slack in the labor market and more good news about lowering gas prices “raise the likelihood that the economy might gradually revert to softer inflation over the course of the next year without entering a recession.”
More than 80 percent of the equities in the S&P 500 fell on Friday, indicating a broad market decline. Again, technology companies, which weighed heavily on the market for the most of this week, were a significant drag on the index. Microsoft declined 1.7%.
Communication and healthcare companies also contributed to the market decline. UnitedHealth fell 1%, while Meta Platforms down 3.2%.
As the price of U.S. crude oil increased by 1%, the energy sector was a bright light. Marathon Oil added 2.7%.
Treasury yields, which had been increasing in tandem with predictions of increased interest rates, declined significantly. The yield on the 10-year Treasury note, which determines the interest rates on mortgages and other consumer loans, decreased to 3.20 percent late Thursday from 3.26 percent. The yield on the two-year Treasury note, which tends to mirror Fed action predictions, decreased to 3.41% from 3.51%.
The benchmark S&P 500 closed August with a 4.2% loss after rising the previous month on anticipation that the Federal Reserve will slow rate rises in response to evidence of a slowdown in U.S. economic growth and a possible stabilization of inflation.
The stock market dropped last week after Fed Chair Jerome Powell said that the Fed must maintain interest rates up “for some time” to slow the growth. The main concern for many investors is the amount and timing of the next increase.
The most recent employment figures were released a day after the Labor Department announced a decline in initial jobless claims for the previous week, another indication of a robust labor market. Earlier this week, it was reported that there were two jobs for every jobless individual in July.
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