Wall Street closed sharply lower on Friday despite better-then-expected nonfarm payroll data for August. Markets jumped significantly in the first half of the trading session. However, it gave up all gains and ended deep in red as market participants remained concerned on Fed’s decision of rigorous interest rate hiking. All the three major stock indexes finished in red. For the week as a whole, these indexes reported third straight weekly losses. U.S. stock markets remained closed on Monday on occasion of Labor Day.
How Did The Benchmarks Perform?
The Dow Jones Industrial Average (DJI) fell 1.1% or 337.98 points to close at 31,318.44. Notably, 27 components of the 30-stock index ended in negative territory while 3 in green. The major loser of the blue-chip index was 3M Co. MMM, shares of which tanked 3.2%. The stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The tech-heavy Nasdaq Composite finished at 11,630.86, tumbling 1.3% or 154.26 points due to weak performance of large-cap technology stocks. The tech-laden index recorded six consecutive days of losses for the first time since August 2019.
The S&P 500 slid 1.1% to end at 3,924.26. Ten out of the 11 broad sectors of the benchmark index closed in negative zone while one in green. The Communication Services Select Sector SPDR (XLC), the Real Estate Select Sector SPDR (XLRE), the Healthcare Select Sector SPDR (XLV), the Technology Select Sector SPDR (XLK), the Consumer Staples Select Sector SPDR (XLP) and the Utilities Select Sector SPDR (XLU) tanked 1.9%, 1.7%, 1.4%, 1.3%, 1.3% and 1.1%, respectively. On the other hand, the Energy Select Sector SPDR (XLE) gained 1.8%.
The fear-gauge CBOE Volatility Index (VIX) was down 0.4% to 25.47. A total of 9.95 billion shares were traded Friday, lower than the last 20-session average of 10.48 billion. Decliners outnumbered advancers on the NYSE by a 1.34-to-1 ratio. On Nasdaq, a 1.65-to-1 ratio favored declining issues.
A Hawkish Fed
Wall Street has entered September with a series of serious near-term concerns. Inflation continues to be at a 40-year high despite an increase in the Fed Fund rate from almost zero to 2.5% during March to July. Moreover, the central bank has started to systematically reduce the size of its $9 trillion balance sheet since June.
Fed Chairman Jerome Powell and various other top Fed officials with voting rights have indicated that the rigorous rate hike will continue until inflation is at least down to near the Fed’s 2% target rate. Investors were hoping for a rate cut in 2023, which at present, looks like a remote possibility. As a result, market participants are highly concerned about a recession in the U.S. economy in the near future. Fed Chairman has also warned of toughness going forward.
Economic Data
The Department of Labor reported that job additions in August came in at 315,000 beating the consensus estimate of 295.000. However, this marked the lowest monthly job gains since April 2021. July’s data was revised downward to 526,000 from 528,000 reported earlier. Similarly, June’s data was revised downward to 293,000 from 398,000 reported earlier.
Unemployment rate increased to 3.7% in August from 3.5% in July. The consensus estimate was also 3.5%. However, the rise in unemployment rate was primarily due to higher labor force participation rate at 62.4%, reflecting the highest level year to date. The real unemployment that including discouraged workers and those holding part-time jobs for economic reasons increased to 7% in August from 6.7% in July.
Average hourly earnings dropped to 0.3% in August from 0.5% in July. The consensus estimate was 0.4%. Year over year, wage rate climbed 5.2% in August. Average workweek fell marginally 34.5 in August from 34.6 in July.
The Department of Commerce reported that factory orders declined sharply by 1% in July compared with the consensus estimate of a gain of 0.1%. June’s data was revised downward from 2% to 1.8%. July marked the first decline in factory orders after nine straight months of gain. The orders for durable and nondurable goods fell 0.1% and 1.9%, respectively in July.
Weekly Roundup
Last week was a disappointing one for Wall Street. The Dow, the S&P 500 and the Nasdaq Composite tumbled 3%, 3.3% and 4.2%, respectively. Continuation of tighter monetary policies with higher interest rate regime and threat of a recession in near future significantly dented investors’ confidence in risky assets like equities.
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