The U.S. stock market suffered from a major sell-off on Friday prompted by weak jobs data and fears that the economy will become too weak amid a prolonged period of high interest rates.
The job data showed that nonfarm payrolls rose by 114,000 in July, significantly less than the 180,000 projected by economists. On the other hand, the unemployment rate rose to 4.3%, its highest since the second half of 2021. Additionally, several other reports from this week, including one showing a weakening U.S. manufacturing activity, indicate that the U.S. economy is losing its strength.
S&P 500 dropped by 1.84% or 100.12 points in the aftermath to close at 5,346.56 on Friday. This marked the first time since April that the benchmark index had back-to-back losing sessions of at least 1%.
Tech-heavy Nasdaq Composite fell by 2.43% or 417.98 points to close at 16,776.16, while blue-collar Dow Jones Industrial Average closed at 39,737.26 points, marking a fall of 1.51% or 610.71 points.
Experts believe that investors are worried that the Federal Reserve has postponed its rate cuts for too long and that the U.S. economy will now have a tougher time recovering even if the interest rate gets lowered at the upcoming September meeting. While lower interest rates will make borrowing money cheaper right away, leading to increased spending and investments, the true effects of the cuts will take months to show up.
“The Fed almost always waits too long to cut rates. Then, as investors come to realize that the rate cuts are coming more due to a slowdown in growth — rather than a drop in inflation — the situation on the stock market tends to get ugly,” said Matt Maley, equity strategist at Miller Tabak + Co, told Bloomberg.