U.S. Stock Market Faces Significant Declines Amid Concerns Over Economic Growth
NEW YORK — U.S. stocks experienced a sharp decline on Friday, raising questions about the sustainability of the country’s economic growth and prospects for future Federal Reserve interest rate cuts. The sell-off has created ripples around the globe, reaching Wall Street and igniting investor concerns.
The S&P 500 dropped 2.4% in morning trading, positioning itself for its worst performance since 2022 and marking its first consecutive loss of over 1% since April. The Dow Jones Industrial Average fell 608 points, or 1.5%, while the Nasdaq composite witnessed a notable decline of 3.4%.
Market anxiety was exacerbated by a report indicating that U.S. hiring slowed much more than anticipated in the previous month, leading to sharp declines in both stock and bond yields. This report followed several disappointing economic indicators, including a troubling downturn in U.S. manufacturing, which has been adversely affected by higher interest rates.
Just days prior, U.S. stock indexes recorded significant gains following a reassuring statement from the Federal Reserve Chair regarding slowing inflation and the potential for interest rate cuts in September.
The current market sentiment reflects increasing fears that the Fed may have maintained its key interest rates at two-decade highs for too long, jeopardizing economic stability. While a rate cut could ease borrowing for households and businesses, the effects may take months to materialize.
Economist Brian Jacobsen noted, “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 need to execute a more substantial reduction to avert a recession.”
Traders are now pricing in nearly a two-thirds chance of the Fed enacting a half-percentage point rate cut next month, despite indications from the Fed Chair that such a significant reduction is not currently under consideration.
The decline in U.S. stocks had appeared imminent even before the underwhelming jobs report hit the market, particularly as several major technology firms reported disappointing profits. Amazon saw a steep 12.1% drop in its stock after revealing weaker-than-expected revenue and a disappointing profit forecast for the summer. Intel faced an even more severe plunge of 29.3% following poor earnings and the suspension of its dividend.
Conversely, Apple managed to gain 1.4%, bolstered by better-than-expected profit and revenue figures. However, the broader trend shows that even the top-performing stocks, known as the "Magnificent Seven," have faced pressure as investors grow wary of high valuations and challenging profit expectations.
Meanwhile, the Russell 2000 index, which tracks smaller stocks, fell 3.9% as concerns over the fragile economy dampened investor sentiment across various sectors.
Bond markets reacted as Treasury yields dropped sharply, reflecting heightened expectations for Federal Reserve rate cuts. The yield on the 10-year Treasury fell to 3.81%, while the two-year Treasury yield decreased to 3.89%.
Despite these developments, some analysts urge caution amidst rising fears of a policy misstep. "While worries of a policy mistake are rising, one negative miss shouldn’t lead to overreaction," noted a portfolio strategist, who emphasized that the U.S. economy continues to grow and inflation is on the decline.
International markets mirrored this anxiety, with Japan’s Nikkei 225 tumbling 5.8% following the Bank of Japan’s recent interest rate hike, which threatened tourism and exporter profits. Chinese stocks also extended their decline amid disappointment with the government’s growth initiatives.
In Europe, stock indexes fell as well, mirroring the global trend of market distress. This tumultuous week has unfolded against a backdrop of central bank actions: Japan raised its rates, the Fed maintained its stance, and the Bank of England lowered its key rate for the first time in over four years.
Compounding these economic concerns, commodity prices have fluctuated significantly, particularly in oil markets, with U.S. crude prices dropping 3.5% to $73.62 per barrel, resulting in a weekly loss of 4.6%.
As the financial landscape continues to evolve, investors are closely monitoring economic indicators and Fed policy for hints on the future direction of the market.
