The US stock market experienced a dramatic downturn on Friday, as investors grappled with a series of weaker-than-expected economic reports and underwhelming earnings from major tech companies, notably Amazon and Intel.
All three major indexes suffered significant losses, with the Dow Jones industrial average plummeting nearly 1,000 points at its lowest intraday level. The S&P 500 fell 3% over two days, while the tech-heavy Nasdaq Composite dropped almost 5%, now entering correction territory.
The downturn began on Thursday with a string of negative economic indicators. Jobless claims surged to near a one-year high, and manufacturing data fell short of expectations. Investor sentiment soured further after market close, as Amazon missed its second-quarter sales forecast and Intel announced a major workforce reduction and dismal growth outlook, causing its stock to drop by up to 30%.
Friday's sell-off intensified with a disappointing jobs report, showing the economy added 61,000 fewer jobs than anticipated in July and an unexpected unemployment spike to 4.3%. This triggered the Sahm rule, a recession indicator closely monitored by analysts.
The shift in investor response to weak economic data suggests a growing concern over the rapid economic slowdown. Previously, such signs were seen as likely to prompt Federal Reserve rate cuts, which typically boost stocks. However, with a September rate cut now expected, fears are mounting that the economic deceleration may be too severe.
"Bad news is no longer good news for stocks," commented John Lynch, Chief Investment Officer at Comerica Wealth Management. He noted that pressure on the Federal Reserve is increasing as market interest rates push for action.
Seema Shah, Chief Global Strategist at Principal Asset Management, questioned whether the Fed had miscalculated its rate-cutting strategy. "The labor market's slowdown is becoming clearer," she said, suggesting that the Fed might have been too slow to respond.
New York Fed economists estimate a 56% chance of a recession by June next year, and Wall Street’s rate-cut expectations have grown more dovish. The likelihood of a 50-basis-point reduction in September has soared to 75%, up from 12% a week ago.
"This is further proof that the economy is slowing," said Ryan Detrick, Chief Market Strategist at Carson Group. He emphasized that the Fed should prioritize economic concerns over inflation, indicating a strong possibility of a significant rate cut in September.
