Market response to the Labor Department’s July jobs report
The July jobs report from the Labor Department highlights worries that the Federal Reserve has committed a significant policy error by not lowering rates earlier this summer, as job growth has slowed and wage increases have declined.
A net of 114,000 new jobs were generated last month, considerably below the anticipated 175,000 by analysts, marking it as the second-lowest count of the year. Average hourly earnings increased by 3.6%, representing the smallest rise since May 2021, while the overall unemployment rate climbed to 4.2%, the highest level since October 2021.
Stocks continued their steep downturns, with futures linked to the S&P 500 indicating a 93-point drop at the opening bell and the Dow predicted to open down by 515 points.
Yields on the rate-sensitive 2-year notes decreased to a 15-month low of 3.952%, while yields on 10-year notes fell to 4.802%.
The entirety of today’s jobs report is causing markets to express concerns not just about growth but also regarding a Federal Reserve policy error.
Global market activity and notable stock movements
Stocks closed significantly lower last night following a lackluster reading of manufacturing activity in the largest economy, which dipped to an 8-month low in July, alongside fears that the Federal Reserve’s hesitation to lower interest rates might negatively affect growth and elevate recession risks.
“Investors struggled to comprehend the manufacturing data — is this a one-time event, or the slow descent into the recession that never materialized?” inquired Jamie Cox, managing partner at Harris Group Financial in Richmond, Va.
“Markets are beginning to think that perhaps the Federal Reserve should have enacted a rate cut this week,” he continued.
Weakening employment figures also contributed to the situation, with disappointing weekly jobless claims and a closely monitored report on corporate layoffs revealing the weakest hiring intentions since 2012.
As a result, Treasury bond yields, which usually provide support for stocks, plummeted sharply, driven by a flight-to-safety sentiment rather than expectations for rate cuts, leading to negative market reactions.
Benchmark 10-year note yields, which dipped below 4% for the first time since February last night, were last noted at January levels of 3.942% during early New York trading.
Simultaneously, yields on 2-year notes, sensitive to interest rate projections, fell to 4.115%, the lowest since May of the previous year. Expectations for a 50 basis-point rate cut by the Fed in September surged to 29.5%, as per the CME Group’s FedWatch.
Markets are eagerly awaiting today’s July employment report, anticipated to reveal more slowdown in hiring and modest wage growth.
Initial estimates indicated an increase of 177,000 new jobs, but recent weaker data has widened the predictions to a range between 140,000 and 180,000 ahead of the 8:30 am Eastern Time release.
On Wall Street, stocks are projected for a sharply lower opening on Friday following last night’s decline, with futures contracts associated with the S&P 500 indicating a 69-point downturn at the start of trading.
The Dow Jones Industrial Average is projected to drop by 425 points, while the tech-heavy Nasdaq is forecasted for a 350-point setback.
Apple shares were a notable mover in premarket trading, inching up 0.4% after the iPhone manufacturer reported stronger-than-expected fiscal third-quarter earnings and suggested improvements in sales and margins over the forthcoming months.
Conversely, Amazon’s shares were down by 8.5% after posting a mixed second-quarter earnings report, which included a slight revenue miss exacerbated by plans for increasing capital expenditures on AI initiatives during the latter half of the year.
Intel’s shares, meanwhile, tumbled over 20% in premarket activity, reverting to levels not seen since the mid-1990s after the chipmaker offered a tepid near-term sales forecast, announced plans for a 15% workforce reduction, and suspended its quarterly dividend.
Additional Wall Street Analysts:
- Analyst reassesses Nvidia stock price target after Blackwell checks
- Analysts update Walgreens stock price targets following earnings
- Analyst adjusts Facebook parent stock price target amid AI competition
In international markets, Europe’s Stoxx 600 index fell by 1.67% in Frankfurt, with Britain’s FTSE 100 down by 0.52% in London.
In Asia, Japan’s Nikkei 225 dropped by 5.08%, marking its largest single-day loss since the pandemic, while the broader Topix index, oriented towards domestic stocks, experienced its worst day since 2016.
The regional MSCI ex-Japan benchmark decreased by 2.44% as trading drew to a close.
