U.S. Stocks Register Their Steepest Weekly Decline Since March: Renewed fears of an economic slowdown and the Federal Reserve’s slow
response resurfaced after the August jobs report, pushing markets into negative territory.
Stocks posted substantial declines, marking their weakest weekly performance since March 2023.
Bonds also fell, driven by disappointing labor market data,
heightening investor anxiety about the economic outlook.

Contents

Decline in U.S. Stock Indices

Federal Reserve Rate Expectations

Labor Market Data and Reactions

Decline in Stocks and Key Sectors

The Fed’s Cautious Approach

How Does Wall Street View the Jobs Report

Decline in U.S. Stock Indices

The S&P 500 index dropped by 1.7%, while the Nasdaq 100 fell by 2.7%,
as data showed job growth was 23,000 jobs short of expectations in August.
Yields on two-year Treasury bonds decreased by up to 15 basis points before slightly recovering.

Federal Reserve Rate Expectations

Meanwhile, Wall Street’s bets on a 50 basis point Fed rate cut weakened
after Federal Reserve Governor Christopher Waller stated he was “open” to a larger reduction.
Scott Wren of Wells Fargo Investment Institute noted
that markets are now focusing on how accommodative
the Fed will be with its monetary policy and the speed of the economic slowdown,
expecting short-term volatility.

Labor Market Data and Reactions

Non-farm payrolls increased by 142,000 jobs in August,
the lowest three-month average since mid-2020.
The unemployment rate fell to 4.2% for the first time in five months,
reflecting the impact of temporary layoffs.
Stephen Blitz of TS Lombard indicated that the economy is nearing a critical turning point,
and upcoming Fed decisions on rate cuts will be crucial.

Decline in Stocks and Key Sectors

All major groups in the S&P 500 fell,
with significant companies like Nvidia dropping 4.1%
and Broadcom declined by 10% due to disappointing forecasts.
The Dow Jones Industrial Average fell by 1%,
and the Russell 2000 index of small-cap companies dropped by 1.9%.
Wall Street’s fear gauge, the VIX, rose to 22 points,
while 10-year Treasury yields stabilized at 3.72%.

The Fed’s Cautious Approach

Traders expect a rate cut of about 25 basis points in September,
with slim chances of a larger cut.
Krishna Guha of Evercore suggests that the Fed leans toward a gradual cut in September,
with the potential for accelerated reductions in November if employment risks increase.

How Does Wall Street View the Jobs Report?

David Donabedian of CIBC Private Wealth believes
the report highlights the risks of a soft landing without entering a recession,
with markets continuing to look for signs of the slowdown’s extent.

Seema Shah of Principal Asset Management states that the Fed’s
decision will hinge on balancing inflation and recession risks,
favoring a cautious 25 basis point cut.

Andrew Brenner of NatAlliance Securities considers
the report gives the Fed room to move in any direction
but believes the Fed is currently lagging behind the market’s pace.

In conclusion, expectations are growing for the Fed to begin a cycle of monetary easing,
but the size and pace of action remain uncertain,
reflecting significant challenges facing policymakers during
this sensitive phase of the economic cycle.

U.S. Stocks Register Their Steepest Weekly Decline Since March 2023

U.S. Stocks Register Their Steepest Weekly Decline Since March

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