Markets start to tumble, as shutdown continues

MANHATTAN (CN) — Wall Street took some moderate losses this week due to a run on certain tech stocks, in what analysts hope is not the start of a trend.

Key Wall Street figures warned this week that equity markets could soon face a correction. At an economic summit in Hong Kong, Goldman Sachs CEO David Solomon said that “it’s likely there’ll be a 10% to 20% drawdown in equity markets in the next 12 to 24 months.”

Concerns over an artificial intelligence stock bubble drove the pullback, with shares of Nvidia and other major players tumbling in recent days. By Friday’s close, the Dow Jones Industrial Average lost 577 points, the S&P 500 dropped 112 points and the Nasdaq fell 720 points.

Investors typically look to the monthly federal jobs report for guidance, but none was released for the second straight month because of the ongoing government shutdown.

However, payroll company ADP still issued its jobs report, noting that 42,000 private-sector jobs were added last month, the first time the U.S. economy has added jobs since July. The headline print was about 10,000 more than forecast and well above the 29,000 jobs lost in September.

The service-providing industries accounted for 33,000 of the total, while all the job gains came from larger companies with more than 500 employees. Companies with fewer than 500 employees lost 31,000 jobs in October, ADP reported.

“Whatever economic stresses there are out there, we know small- and medium-sized businesses are more sensitive to them,” Peter Boockvar, chief investment officer at One Point BFG Wealth Partners, wrote in an investor’s note. “That said, it seems now every week that we are hearing about a large company shredding workers and cutting costs.”

Federal jobs data have been unavailable for two months, and the Bureau of Labor Statistics may not finish compiling the December figures even if the shutdown ends soon.

The Institute for Supply Management’s latest reports sent mixed signals. The services index rose to 52.4% in October, up from the 50% reported last month and slightly above expectations. However, the manufacturing index slipped to 48.7, signaling weaker consumer demand and hiring and slipping into contraction territory; readings below 50 hint at a recession.

“Firms are concentrated on managing headcount and reducing overhead costs, with a noticeable shift towards the use of layoffs in addition to attrition,” Matthew Martin, senior U.S. economist at Oxford Economics, wrote in an investor’s note. “Manufacturing payroll employment will likely show further declines when data is eventually released.”

The report marks the 26th straight month of contraction. While a few of the sub-indices improved – new export orders rose by 1.5%, and the “backlog of orders” index increased by 1.7% – overall, they all remain in contraction territory.

“Until the full effect of tariffs filters through supply chains and trade policy uncertainty wanes, the sector is likely to be mired in recession,” Martin continued, though he added tax incentives from the recent federal budget should help.

In a speech to the Brookings Institution Federal Reserve, Governor Lisa Cook said inflation should drop to the central bank’s 2% average, but that it won’t happen until companies fully absorb the impact of tariffs. “My outreach to business leaders suggests that the pass-through of tariffs to consumer prices is not yet complete,” she said.

Cook added that because some companies have not passed on costs since they don’t yet know where tariffs will settle, “I expect inflation to remain elevated for the next year.”

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