The stock market closed out a turbulent week with significant losses on Friday. The Nasdaq Composite plunged more than 2.5%, marking its worst week since June 2022. The S&P 500 and Dow Jones Industrial Average dropped around 1.7% and 1%, respectively, with the S&P 500 experiencing its worst week since March 2023.
Investors were digesting a crucial jobs report that provided clues to the size of this month’s expected interest rate cut. The report trailed expectations for about 165,000 jobs added, with the prior month’s job growth also revised lower, indicating signs of continued cooling in the labor market. The unemployment rate ticked back down to 4.2%.
The report shifted expectations for the Fed to enact a more sizable rate cut at its upcoming meeting. Traders now see a 50-50 chance of a 50 basis point cut. On Friday, Fed Governor Chris Waller commented that “the time has come” to lower interest rates, suggesting that if the data supports cuts at consecutive meetings, it would be appropriate to proceed in such a manner.
In corporate news, chipmaker Broadcom’s shares fell more than 10%. Despite benefiting from a surge in AI spending, its other divisions fell short, dragging down other chip stocks. Shares of AI heavyweight Nvidia fell about 4%.
Analysts have slashed their earnings expectations for the current quarter by 2.8% during July and August. Outside of the Magnificent 7, estimate revisions for 2024 and 2025 earnings per share have been seen as uninspiring, though stable.
Stock market losses deepen after jobs report
This marks a shift in market sentiment compared to the previous quarter where analysts raised their estimates. Next week, investors’ attention will be focused on the latest update on consumer prices. The report, set for release on Wednesday, is expected to show headline inflation of 2.6%, a deceleration from previous months.
Economists also expect monthly core prices to remain unchanged, estimating an uptick of 0.2%. The upcoming inflation report could help clarify the Fed’s decision on the rate cut. Oil prices are heading for their biggest weekly drop in nearly a year after a weak US jobs report spurred more fears of slowing demand.
Crude oil prices fell about 2% to trade just below $68 a barrel. Brent crude also dipped around 2%, with prices hovering above $71 a barrel. US stocks sold off Friday following the weak jobs report for August, with one economist predicting that market volatility will likely continue.
Michael Darda, chief economist at Roth Capital Partners, noted that the risk of a more material pullback and/or correction is quite high. He argued against the idea of the US economy achieving a “soft landing” and pointed to rising unemployment rates and elevated earnings expectations as contributing to these concerns. Shares of Nvidia sank as much as 5% on Friday, leading a sell-off in chip stocks.
The AI chip heavyweight was under pressure along with other semiconductor names. Shares of Broadcom also sank nearly 9% after the semiconductor giant’s lackluster sales forecast for the fourth quarter overshadowed its earnings beat. Taiwan Semiconductor, Advanced Micro Devices, and ASML each slid more than 4%.
