US Stocks Tank After Employment Data – Nasdaq Hit by 2.5% Decline
US stock markets slumped on Friday after employment data slightly missed expectations. Investors had been anticipating a strong possibility of a 50-basis point interest rate cut from the Federal Reserve next week. However, the market is now leaning towards a more cautious 25-point reduction to initiate the cycle. The Dow dropped by 1.01%, the S&P 500 by 1.73%, but the Nasdaq bore the brunt of the selling, falling by 2.55% on the day.
US Treasury yields continued their downward trajectory, with the 2-year note losing 10.6 basis points to settle at 3.646%, while the 10-year yield fell by 2.8 basis points to 3.708%. The dollar strengthened, gaining 0.2% on the index, as currencies reacted sharply to the data release. Oil prices took another hit, with Brent crude dropping 2.24% to close at $71.06, and WTI falling 2.14% to finish the week at $67.67 a barrel. Gold also dipped amid the stronger dollar, losing 0.77% to settle below the key $2,500 mark once again, at $2,497.41 an ounce.
Market Eyes Further Rate Cuts from the Fed
In the near term, Friday’s employment data has been interpreted as the worst possible outcome for risk assets in the US, pointing towards a slowing economy but likely prompting only a 25-basis point cut from the Fed. Some equity investors had been hoping for a 50-basis point reduction to stimulate the market more aggressively next week. However, the modest drop in the data suggests the FOMC may choose the more conservative option.
Futures markets now indicate a 73% probability of a 25-basis point cut, up from the near 50/50 chance expected last week. In the longer term, the increasingly weak labour numbers have driven expectations of further rate cuts, with 251 basis points worth of reductions now priced in by the end of 2025, adding further pressure on US Treasury yields. There are still 10 days to go before the Fed’s decision, with a key CPI report yet to be released, so traders anticipate continued volatility in the rates markets in the days ahead.
Markets Set to Start the Week on a Negative Note
Asian markets are expected to open on a weak footing this morning, following Wall Street’s sharp decline on Friday after the release of the US employment data. Investors will be closely watching for macroeconomic indicators during today’s session, including the release of CPI and PPI figures from China. Chinese stocks ended at a seven-month low on Friday, and investors are hoping for positive news from the data to spur a recovery. The forecast is for a 0.7% increase in CPI, and traders expect volatility around the announcement.
With very little else on the economic calendar for the rest of the day, trading conditions should be smoother, although some investors are anticipating further downside potential as the market continues to adjust to reduced expectations of Fed stimulus compared to last week.
