A disappointing U.S. jobs report on Aug. 2 threw fuel on the global stock market sell-off, as weak employment data heightened investor fears of an economic slowdown and sent investors running for safety.
European stocks had their worst day in over a year, while Japan’s benchmark Nikkei 225 suffered its biggest points drop since the COVID-19 pandemic, as investors digested news that the U.S. economy added far fewer jobs than predicted and that the unemployment rate jumped above expectations.
The benchmark Stoxx Europe 600 Index, representing 600 large-, mid-, and small-cap companies across 17 European countries, ended the session 2.7 percent lower, the biggest drop in over a year.
Japan’s Nikkei 225 plummeted 5.8 percent, its biggest daily drop since March 2020 when the COVID-19 pandemic triggered a sharp sell-off.
Anxiety also gripped Wall Street, sending the VIX volatility measure—dubbed the “fear gauge”—surging by over 38 percent.
The Dow Jones Industrial Average fell 848.67 points, or 2.1 percent, to 39,499.31, the benchmark S&P 500 Index lost 125.12 points, or 2.30 percent, to 5,321.57, and the Nasdaq Composite lost 459.19 points, or 2.43 percent, to 18,431.19, as of 1:30 p.m. EST.
The stock rout came as the Bureau of Labor Statistics said Friday that the U.S. economy added 114,000 new jobs in July, a marked slowdown from June’s 179,000 and well below economists’ expectations of 175,000.
Friday’s data also showed the unemployment rate jumping from 4.1 percent to 4.3 percent in July, rising to its highest level since October 2021 and further signaling deceleration in the labor market.
Much of the market narrative around the disappointing jobs report focused on the Federal Reserve’s high interest-rate settings, amplifying investor bets for steeper rate cuts while fueling fears that the U.S. central bank may be too late in dialing back its tight monetary settings to avoid a recession.
“The Fed is already falling behind the curve and rates are overly restrictive–a 50 basis-point cut in September would only be catching-up to, rather than getting ahead of, the curve,” Yung-Yu Ma, chief investment officer at BMO Wealth Management, said in a note.
Some analysts said that the dismal jobs report presented investors with a good excuse to take profits and that markets should brace for more volatility.
“This is a good excuse for investors to sell after a huge year-to-date rally. Does this weaker jobs number portend a recession that’s coming two quarters from now? There’s a lot of conflicting data,” said Michael Purves, CEO of Tallbacken Capital Advisors.
“Investors should be prepared for some major volatility, particularly in the big tech stocks,“ he continued. ”But it will probably be short-lived. The earnings reports haven’t been blockbuster, but they haven’t been bad either.”
So far, the U.S. corporate earnings season has come in slightly better than expected, but a number of high-profile reports are due in the coming week—including Disney and Uber—providing potential for downside surprises that could move jittery markets.
More than half of S&P 500 companies have already reported, and, so far, 78.4 percent of them have topped analyst estimates for earnings.
Investors fleeing high-risk assets like stocks sought refuge in the relative safety of U.S. Treasurys, which sent the yield on the benchmark 10-year Treasury to 3.822 percent intraday, the lowest level in about a year.
Bond yields go in the opposite direction to prices, with bigger demand sending yields lower.
“There is a silver lining here. With yields now pulling back below 4 percent, they are travelling down to a much more competitive level,” said Brian Mulberry, client portfolio manager at Zacks Investment Management.
