US stocks lose more ground on recession fears and interest rates

NEW YORK >> Good news on the economy remains bad news for Wall Street as stocks fell sharply today on fears that a still strong US jobs market could actually make a recession more likely.

The S&P 500 ended down 2.8% after briefly falling 3.3% as traders assessed a government report showing employers hired more workers last month than economists expected. The Dow Jones Industrial Average fell 2.1% and the Nasdaq composite lost 3.8%.

Wall Street fears that the Federal Reserve will see only evidence that the economy has not yet slowed enough to bring inflation under control. This could pave the way for the Fed to continue to aggressively raise interest rates, potentially triggering a recession if done too harshly.

“The jobs picture is still good and it could be a little frustrating for the Fed,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. “The Fed thinks we need more unemployed workers to make sure inflation comes down and stays low.”

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Shares have fallen more than 20% from record highs this year on worries about inflation, interest rates and the possibility of a recession.

Major indexes managed to register a gain for the week, thanks to a powerful but short-lived rally on Monday and Tuesday after some investors squinted hard enough on some weaker-than-expected economic data to suggest the Fed could take more time for rate hikes. . But today’s jobs report may have dashed those hopes of a Fed ‘pivot’. This is a pattern that has repeated itself several times this year.

“For much of this year, there’s really been some false optimism among many investors that the Fed will be stepping on the brakes and pivoting sooner than they’ve been telling us for some time,” he said. said Bill Merz. , head of capital markets research at US Bank Wealth Management.

“The market is increasingly accepting, albeit gradually, that the Fed is very unlikely to pivot in the near term, as some had hoped.”

Employers added 263,000 jobs last month. That’s a slowdown from July’s hiring pace of 315,000, but it’s still more than the 250,000 expected by economists.

Another discouraging element for investors, the unemployment rate has improved partly for the wrong reasons. Among those who are not working, fewer than usual are actively looking for a job. This is the continuation of a long-standing trend that could keep upward pressure on wages and inflation.

“We’re not out of the woods yet, but we should get closer as the impact of aggressive policy begins to be felt,” said Matt Peron, director of research at Janus Henderson Investors.

By raising interest rates, the Fed hopes to slow down the economy and the job market. The plan is to starve inflation of the purchases needed to keep prices rising even further. The Fed has already seen some effects, with rising mortgage rates hurting the housing sector in particular. The risk is that if the Fed goes too far, it could drag the economy into a recession. In the meantime, higher rates drive down the prices of stocks, cryptocurrencies, and other investments.

“It’s all about inflation at this point,” said Peter Essele, head of portfolio management for Commonwealth Financial Network. “We believe this will moderate over the next several quarters.”

All told, many investors see today’s jobs data keeping the Fed on track to raise its key rate by three-quarters of a percentage point next month. This would be the fourth such increase, triple the usual amount, and would bring the rate to a range of 3.75% to 4%. He started the year at practically zero.

Crude oil, meanwhile, posted its biggest weekly gain since March. Benchmark U.S. crude jumped 4.7% to settle at $92.64 a barrel today. Brent, the international standard, rose 3.7% to $97.92.

They rose because major oil-producing countries pledged to cut production in order to keep prices high. This should keep pressure on inflation, which is still near a four-decade high but hopefully moderating.

Rising crude helped stocks of oil-related companies to be among the very few on Wall Street to rise today. Oil services provider Halliburton climbed 2%.

Tech company stocks have led the way in the opposite direction. They have been among the hardest hit by this year’s rate hike, which has hurt the most investments seen as riskiest, most expensive or likely to make investors wait the longest for strong growth.

Microsoft fell 5.1% and Amazon 4.8%.

In total, more than 90% of S&P 500 stocks closed lower today. The index fell 104.86 points to 3,639.66. It ended with a 1.5% gain for the week, its first weekly gain in four weeks.

The Dow lost 630.15 points to 29,296.79, while the Nasdaq lost 420.91 points to close at 10,652.40.

Small company stocks also lost more ground. The Russell 2000 Index fell 50.36 points, or 2.9%, to 1,702.15.

Beyond higher interest rates, analysts believe the next hammer blow to equities could be a potential decline in corporate earnings. Businesses face high inflation and interest rates that eat away at their profits, while the economy slows.

Advanced Micro Devices fell 13.9% after warning that its latest quarter revenue was expected to hit $5.6 billion, below its earlier guidance range of $6.5 billion to $6.9 billion. AMD said the personal computer market weakened significantly in the quarter, hurting its sales.

Levi Strauss fell 11.7% after slashing its financial forecast for its fiscal year. He cited the rising value of the US dollar against other currencies, which is weakening the dollar value of overseas sales, as well as a more cautious outlook for the economies of North America and Europe.

Treasury yields rose immediately after the release of the jobs report, although they faltered slightly afterwards. The 10-year Treasury yield, which helps set rates for mortgages and other loans, climbed to 3.88% from 3.83% on Thursday evening.

The two-year yield, which more closely tracks Fed action expectations, fell to 4.30% from 4.26%. Earlier in the morning it climbed above 4.33% and was close to its highest level since 2007.

Leslie M. Gill