Wall Street suffers bloodbath as unemployment ticks up

MANHATTAN (CN) — A disappointing jobs report and poor manufacturing data caused a major sell-off on Wall Street this week, as resurgent recessionary worries dominated investors’ minds.

Markets started the week in mildly positive territory, but manufacturing order and pricing data on Thursday caused a quick reversal. By the closing bell Friday all three indices were in solidly negative terrain, with the Dow Jones Industrial Average losing 855 points, the S&P 500 dropping 113 points, and the Nasdaq falling 581 points.

Investors hoping the Federal Reserve would accelerate its schedule and cut interest rates this week were disappointed, though experts had long predicted September as the start of rate cutting.

That prediction is almost a certainty now, especially as the Fed amended its July statement from previous ones to say it remains “attentive to the risks to both sides of its dual mandate” and is not focused mainly on getting inflation down to 2% annually.

“When we were far away from our inflation mandate, we had to focus on that,” Fed chair Jerome Powell told reporters following the announcement. “Now we’re back to closer-to-even focus, so we’ll be looking at labor market conditions.”

While Powell did lay fairly definitive groundwork — or as definitive as the Fed ever gets — for a rate cut at its meeting next month, he also said the Fed has no plans to for a 50-basis point cut. “That’s not something we’re thinking about right now,” he said.

Some analysts now predict the federal funds rate to hit the 3.5% to 3.75% range by the middle of next year. “With monetary policy acting with a lag, the Fed probably could have initiated a rate cut at [the July] meeting, but perhaps Chairman Powell is looking for more bang with his buck at the September meeting,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.

The sell-off accelerated Friday, when the federal jobs report came out far lower than analysts had forecast. The federal print missed the media forecast by about 70,000 jobs, and the two previous monthly jobs reports were revised down by 29,000 jobs.

The increase in the unemployment rate to 4.3% also triggers the so-called Sahm rule, a key indicator of a recession. “The economy and the stock market have been resilient because unemployment has stayed low and consumers have kept spending,” said Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance.

“But if that is no longer the case then the Fed has made a serious error in keeping rates too high for too long,” he said.

Earlier in the week, the monthly consumer confidence index by the Conference Board showed a slight uptick in consumers’ assessment of current labor market and economic conditions.

However, with the index still below 80 — which the Conference Board considers the threshold that signals an incoming recession — the reading is by no means a positive one.

“Compared to last month, consumers were somewhat less pessimistic about the future,” said Dana Peterson, chief economist at the board. “Expectations for future income improved slightly, but consumers remained generally negative about business and employment conditions ahead.”

Follow @NickRummell

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit