"Dow Plummets 600 Points Amid Global Sell-Off and Weak Jobs Data"

NEW YORK (AP) — Stocks plummeted Friday as concerns grew that the U.S. economy might be faltering under the pressure of high interest rates intended to combat inflation.

The S&P 500 fell 1.8%, marking its first consecutive losses of at least 1% since April. The Dow Jones Industrial Average dropped 610 points, or 1.5%, while the Nasdaq Composite declined by 2.4%. This downturn followed a global sell-off that eventually hit Wall Street.

A report indicating that U.S. employers hired fewer workers than economists had anticipated added to market fears, leading to sharp declines in both stock and bond yields. This followed a series of disappointing economic reports from the previous day, including a worsening in U.S. manufacturing activity, which has been significantly impacted by high interest rates.

Earlier in the week, U.S. stock indexes had surged to their best performance in months after Federal Reserve Chair Jerome Powell suggested that inflation had slowed enough to consider rate cuts beginning in September.

However, there are now growing concerns that the Federal Reserve may have maintained its key interest rate at a two-decade high for too long. While a rate cut would make borrowing easier for U.S. households and businesses, thereby boosting the economy, the effects might take several months to become apparent.

Economic Context and Fed's Challenge

Brian Jacobsen, chief economist at Annex Wealth Management, commented, "The Fed is seizing defeat from the jaws of victory. Economic momentum has slowed so much that a rate cut in September will be too little and too late. They’ll have to do something bigger than the traditional quarter-point cut to avert a recession."

Traders now anticipate a 70% likelihood that the Fed will cut its main interest rate by half a percentage point in September, according to CME Group data. This is despite Powell's statement on Wednesday that such a significant reduction is "not something we’re thinking about right now."

The U.S. economy continues to grow, and a recession is not guaranteed. The Fed has consistently acknowledged the delicate balance it must maintain since it began sharply increasing rates in March 2022: being too aggressive could stifle the economy, while being too lenient might allow inflation to persist.

While refraining from declaring victory in controlling inflation or boosting employment, Powell noted before the recent economic reports that Fed officials "have a lot of room to respond if we were to see weakness" in the job market after the significant rate hikes.

Nate Thooft, senior portfolio manager at Manulife Investment Management, remarked, "Certainly today’s job data feeds the weakening economy narrative, but I believe the market is overreacting at this point and pricing too much in on rate cuts at this stage. Yes, the economy is weakening, but I am not convinced there is enough evidence that the data so far is a death knell for the economy."

Tech Sector and Broader Market Impacts

Even before the disappointing jobs report, U.S. stocks appeared to be heading for losses on Friday.

Several major technology companies reported underwhelming earnings, continuing a trend that began last week with disappointing results from Tesla and Alphabet.

Amazon fell 8.8% after reporting lower-than-expected revenue for the latest quarter. The company's forecast for operating profit for the upcoming quarter also fell short of analysts’ expectations.

Intel experienced a significant drop of 26.1%, marking its worst day in 50 years, after reporting a quarterly profit that missed forecasts. The company also suspended its dividend payment and projected a loss for the third quarter, contrary to analysts’ expectations of a profit.

Apple fared better, rising 0.7%, after posting stronger-than-expected profit and revenue figures.

Apple and a few other major tech stocks, dubbed the “Magnificent Seven,” have been key drivers of the S&P 500’s record-setting performance this year, partly fueled by excitement over artificial intelligence technology. However, their momentum waned last month amid concerns that investors had driven their prices too high.

Friday’s losses in tech stocks dragged the Nasdaq Composite 10% below its record high from last month, a drop that traders refer to as a “correction.”

Fortunately for Wall Street, other sectors of the stock market that had been hit hard by high interest rates began to recover sharply last month as tech stocks faltered, particularly smaller companies. However, these sectors also declined on Friday amid concerns that a fragile economy could undermine their profits.

The Russell 2000 index of smaller stocks dropped 3.5%, outpacing the rest of the market.

Overall, the S&P 500 fell 100.12 points to 5,346.56. The Dow dropped 610.71 points to 39,737.26, and the Nasdaq Composite fell 417.98 points to 16,776.16.

In the bond market, Treasury yields fell sharply as traders anticipated deeper rate cuts from the Federal Reserve. The yield on the 10-year Treasury dropped to 3.79% from 3.98% on Thursday and 4.70% in April.

International Markets and Commodities

In international markets, Japan’s Nikkei 225 fell 5.8%. It has struggled since the Bank of Japan raised its benchmark interest rate on Wednesday, boosting the value of the yen against the U.S. dollar, potentially hurting exporters' profits and impacting the tourism boom.

Chinese stocks declined as investors were disappointed with the government’s recent measures to spur growth through incremental actions rather than the broader stimulus they had hoped for, while stock indexes fell by over 1% across much of Europe.

Commodity prices also experienced volatility this week. Oil prices surged after the killings of leaders from Hamas and Hezbollah raised fears that an expanding conflict in the Middle East could disrupt crude supplies.

However, prices retreated on Thursday and Friday amid concerns that a weakening economy would reduce fuel consumption. A barrel of benchmark U.S. crude fell below $74 on Friday, having started the week above $77.