US stocks had another bruising week, with the high-tech Nasdaq Composite Index ending the day 1.3 percent lower, marking the sixth consecutive daily decline in the longest losing streak in more than three years.
The leading S&P 500 index fell 1.1 percent on Friday, pushing it down 3.3 percent for the week. The S&P 500 and Nasdaq have fallen for three consecutive weeks.
The moves came after US Department of Labor data showed a slight rise in the unemployment rate and a slowdown in job growth, to 315,000 in August from 526,000 in the previous month. The details failed to allay fears that the Federal Reserve would continue to raise interest rates sharply while battling inflation.
Jobs data has been closely scrutinized in recent months for evidence of how aggressively the Fed is tightening monetary policy, with evidence of a hotter labor market fueling expectations of further and faster interest rate hikes.
Conversely, indications of cooling jobs activity have helped dampen expectations of how much the Fed will choose to increase borrowing costs, as it strives to strike a balance between damping rapid price growth and pushing the US economy into a more protracted slowdown.
“The labor market is moving in the right direction for policy makers,” said Jeffrey Roach, chief economist at LPL Financial. “The slight increase in unemployment coupled with a modest increase in the participation rate means that the labor market in August is less tight than it was in July.”
Stocks initially rose on the jobs report news but by mid-morning started to reverse those gains. The decline accelerated at lunchtime in New York after Gazprom, Russia’s state-owned energy group, said it would shut down the Nord Stream gas pipeline indefinitely in a move likely to exacerbate pressure on Europe’s energy supplies.
The news that Russia would keep the Nord Stream pipeline closed (deliveries were due to resume tomorrow) due to ‘mechanical issues’ helped pull [stocks] Citi strategist Bill O’Donnell wrote.
The three-week decline in US stocks gained momentum after the Federal Reserve’s annual symposium in Jackson Hole last week in which President Jay Powell reiterated the central bank’s commitment to taming inflation, saying they “should continue to do so until the job is done.”
Expectations for Fed rate increases eased slightly after Friday’s jobs report, as trading in federal funds futures indicates that markets expect the central bank to raise its key interest rate to 3.83 percent by March 2023 from a forecast of 3.95 percent at the close of the day. Thursday. But the rate is still a significant hike from the Federal Reserve’s current target range of 2.25 to 2.50 percent, with broad implications for the US economy.
Despite slightly lower bets on the size of the Fed’s next rate hike in September, the overall forecast is still closer to 0.75 percentage point from 0.5 percentage point.
“While some employment doors are closing, with a slight slowdown in salary growth, it is clearly moving at a fast enough pace to give the Fed the open door to pursue its top priority, current low inflation rates,” said Rick Reader, chief investment officer for global fixed income. at BlackRock Corporation.
In government debt markets, the yield on US 10-year Treasuries fell 0.6 percentage point to 3.2 percent. The policy-sensitive two-year yield fell 0.1 percentage point to 3.4 percent, after touching a 15-year high this week. Bond yields rise as their prices fall.
Elsewhere, European stocks extended gains after the jobs data, with the regional Stoxx 600 index adding 2 percent — putting the brakes on five straight days of declines.
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