U.S. equities fell on Friday to cap their third straight weekly decline, after a solid August jobs report failed to ease fears that the Federal Reserve would keep aggressively hiking interest rates to fight inflation.
After rallying through the morning, the Dow Jones Industrial Average erased a 370-point gain and finished the session lower by 337.98 points, or about 1.1%, at 31,318.44. The S&P 500 fell roughly 1.1% to 3,924.26, its lowest close since July. The Nasdaq Composite declined 1.3% to 11,630.86, recording its first six-day losing streak since 2019.
All of the major averages were lower to end the week, making it their third negative week in a row after slumping in the final days of August. The Dow and S&P lost roughly 3% and 3.3%, respectively, while the Nasdaq fell 4.2%.
"There's still a lot of nervousness around what we'll see over the next few months," said Callie Cox, U.S. investment analyst at eToro. "Yes, inflation and the job market are coming back into balance, but at what cost? Markets are still figuring that out."
"To make matters worse, the S&P 500 is trapped in the danger zone – below its three big moving averages," she added. "Those moving averages served as floors up until a few weeks ago. Now, they seem to be ceilings that the index just can't bust through. The mood has definitely changed. While we may not test the lows of this sell-off again, we also may not reach new highs any time soon."
Stocks had been weighed down throughout this week by hawkish comments from Federal Reserve officials signaling that interest rate hikes aren't going away anytime soon. That's put traders on watch for a retest of the June lows, especially knowing September is historically a poor month for the market. Some have suggested that if the S&P 500 fails to hold the 3,900 level, those summer lows could come back into play.
Some investors were briefly comforted on Friday by the highly anticipated jobs report, which showed the economy added 315,000 jobs for the month, just under the Dow Jones estimate for 318,000. Stocks rallied in the first part of the day.
The unemployment rate rose to 3.7%, two-tenths of a percentage point higher than expectations. The August report is particularly important because it's one of the last major economic reports the Fed will weigh before it raises rates at its September meeting. This data point could help the central bank determine whether a 75-basis-point hike.
The last major economic report of note is August CPI on Sept. 13 and is more likely to determine how aggressive the Fed needs to be in the near term.
Major averages slide to cap their third week of losses in a row
Stocks continued their afternoon slide to end the day lower after staging a dramatic market reversal earlier in the day.
The Dow Jones Industrial Average erased a 370-point gain and finished the session lower by 337.58 points, or 1.1%. The S&P 500 gave back a 1.3% gain to close down 1.1%. The Nasdaq Composite lost 1.3%, after being up as much at session highs, for its first six-day losing streak since February.
— Tanaya Macheel
Investors are anxious but not panicked, says Sanctuary's Kilburg
There's been a lot of selling pressure over the past five sessions before the market moved higher Friday, initially, on what investors are calling a "Goldilocks" August jobs report: not too hot, not too cold, just as expected.
"It's a combination of people getting a little bit nervous – is there further to go? Are we still in this bottom discovery? But nonetheless, I see support here at 3,900 on the S&P 500," Sanctuary Wealth's chief investment officer, Jeff Kilburg, said of the market moves on CNBC's "The Exchange" Friday.
Kilburg also pointed to the thin trading volume heading into a holiday weekend in the U.S. as reason for the days dramatic volatility, and reiterated his view that the bottom is in.
"I see the bottom in the S&P 500 printed in June… Here people are talking for a new bottom, I don't see that, there are too many forces here," he said. "And don't forget this is a midterm election year so as we get more certainly in the month of September, I think this is going to bode well for the bulls."
"The VIX is under 26… that anxiety certainly is there, but there's no panic," he added. "This is just part of the process as we're still trying to figure out: is the Fed really going to pull the trigger on 75 basis points?"
— Tanaya Macheel
September selling may have gotten a head start
Friday's afternoon rollover is probably giving veteran traders deja vu to past Septembers, as this has historically been the worst month for stocks.
However, there are some signs that investors may already have gotten most of their seasonal selling out of the way. Morgan Stanley Investment Management's Andrew Slimmon said that high beta stocks, typically a gauge of risk appetite, have sharply underperformed the S&P 500 during the recent losing streak after outperforming the market at a historically high level during the summer rally.
"When you think about the rally off the June low, that was led by a lot of risk-on. You can have a rally where defensives lead, but it was very much a risk-on rally," Slimmon said.
He pointed to the Invesco S&P 500 High Beta ETF (SPHD), which has dropped nearly 12% since mid-August after dramatically outperforming the market over the prior two months.
"That's been washed out in a big way. ... The only reason to pause on 'it's going to be a bad month' is that has been really bad just recently, especially for high-risk stocks," Slimmon said.
— Jesse Pound
Tech's leading stocks to roll over Friday, but communication, healthcare & financials aren't helping either
It's easier to pick out the parts of the S&P 500 that are holding up Friday, rather than those sinking beneath the waves after lunch.
- In technology, look at Microsoft, Apple and Nvidia, all off between 1% and 2%
- Communication services are being led by Google, Meta, Comcast (CNBC parent) and Charter Communications, down between 1.2% and 2.7%
- Consumer cyclicals are mostly Tesla (-2.3%) and Amazon (-0.3%)
- Financials are hurt most by Berkshire Hathaway (-1.0%)
- Healthcare's suffering, too, with Johnson & Johnson, Lilly, Abbott, Danaher and Pfizer all down between 1% and 1.7%
- Philip Morris, Coca-Cola, PepsiCo and Costco are all hurting consumer defensives, falling 1.1% to 2.0%
What's hanging in there but not enough to hang your hat on? Very little outside energy, which is broadly higher across the board. Searching for green, there's the fertilizers (CF and Mosaic), a gold miner (Newmont) and most money-center (Citi, JPMorgan) and a handful of regional banks (Citizens and PNC).
— Scott Schnipper
Russia will hold off on reopening the Nord Stream pipeline, according to reports
Russia's Gazprom will delay the reopening of the Nord Stream 1 pipeline, according to Reuters
State-controlled Gazprom said that it found a fault while performing maintenance on the pipeline. Nord Stream 1 runs under the Baltic Sea and supplies gas to Germany and other European nations. The pipeline had been due to resume operations on Saturday, following three days of maintenance.
The news comes at a time when Europe is scrambling for fuel to get through the winter.
Natural gas futures for October delivery ticked down more than 4%. West Texas Intermediate futures ticked up by about 0.1%, while Brent crude futures gained 0.6%.
Stocks roll over in afternoon trading
Major averages fell sharply in afternoon trading, wiping out earlier gains as investors took off risk before the long weekend.
The Dow was up 370 points at one point before falling into negative territory. The S&P 500 traded 1.3% higher at its intraday peak, while the Nasdaq was up 1.4% at its high.
There was no apparent reason for the sudden reversal, but some say Friday's solid jobs report didn't help change views on the Federal Reserve's aggressive rate hikes.
— Yun Li
The U.S. could be in a 'rolling recession,' Schwab's Liz Ann Sonders says
The U.S. economy may not be in a traditional recession but rather a sector-specific one that will inflict is own damage, according to Liz Ann Sonders, Charles Schwab's chief investment strategist.
"What could happen is a rolling recession, where different pockets of the economy get hit at different times," Sonders said Friday. "Some of the goods-side of the economy, areas that were significantly boosted by the pandemic, stay-at-home areas, those segments of the economy are clearly in recession. But it's offset by the services side."
Debating whether the economy is in technical recession, following consecutive quarters of negative GDP, is "academic at this stage in the game," she added in an interview after the Bureau of Labor Statistics reported Friday that the economy added 315,000 jobs in August.
In fact, she said if the U.S. is facing recession, now would be a good time to have it.
"I'd rather it be underway now or happening soon, because that's a pretty effective way to bring inflation down," Sonders said. "The sooner you're in the sooner you're out of one."
The economy stands at least a decent chance of avoiding a third straight negative GDP reading. Economic data for Q3 thus far is pointing to growth of 2.6% for the July-to-September period, according to the Atlanta Fed's GDPNow tracker.
But Fed officials at this point are more concerned about slowing down inflation, which is running around its fastest pace in more than 40 years, and are willing to sacrifice growth and allow unemployment to run higher. Traders assigned a 58% chance the Fed will tack on another 0.75 percentage point rate hike at the September meeting, down from 75% a day ago, according to CME Group data.
"This could be a jobs-full recession," Sonders said. "The only downside to that is the Fed wants to see some weakening in the labor market. To the extent that inflation doesn't come down consistently and you see strength in the labor market, that just puts to bed the notion that there's going to be a pivot anytime soon."
Kohl's shares jump on offer from Oak Street
Kohl's Shares of the retailer jumped 7.5% following a report that private equity firm Oak Street Real Estate Capital has made an offer to acquire as much as $2 billion of the retailer's property.
The offer would have the U.S. retailer lease back its stores, according to Reuters. It would also give Kohl's a chance to cut a deal with Franchise Group Inc, owner of the Vitamin Shoppe. Negotiations to sell itself to Franchise for almost $8 billion fell through in July.
— Tanaya Macheel
Those stocks that are last shall now be first
Some of this week's worst performers in the S&P 500 are posting some of the largest gains on Friday.
Nvidia is off more than 13% for the week thus far, but was recently higher by about 1.2%. The chip stock sold off this week following U.S. restrictions on chip sales to China.
A pair of fertilizer makers made the top of the screen. Mosaic is down roughly 11.5% for the week but up about 3.5% on Friday. CF Industries is also lower by about 11.5% for the week but ahead 2.3% today.
Other beaten up materials stocks are also popping. Copper producer Freeport McMoRan is down about 10% for the week but up more than 3% today, while lithium miner Albemarle is down 8% for the week but also gaining more than 3% Friday.
Three defensive stocks hit new highs
Friday's rally has pushed just three stocks in the S&P 500 to 52-week highs.
- Cardinal Health ticked up about 0.7% to hit its highest level since March 2018.
- AES Corp. added 3.1% to reach its highest mark since June 2021.
- Constellation Energy, which was spun off from Exelon in January, is up 0.7% and trading at an all-time high.
The list is defensive, with a health care stock and two utility names show. That could suggest that investors aren't confident enough to jump back into riskier stocks even after a solid August jobs report.
— Jesse Pound, Christopher Hayes
S&P 500 reclaims 4,000
The S&P 500 touched the 4,000 level Friday morning, after dipping below it on Tuesday.
Investors were keeping a close eye on the 3,900 level as stocks continued to fall over the next two days. Some suggested that the market has been set up for a rally, but cautioned that if the S&P failed to maintain 3,900, it could retest its mid-June lows.
— Tanaya Macheel
Goldman Sachs reiterates $2 price target on Bed Bath & Beyond shares
Goldman Sachs believes Bed Bath & Beyond's stock is still headed toward $2 despite the brand's recent efforts to turn around its struggling business.
"We reiterate our Sell rating with a 12-month price target of $2 given weak 2Q comp trends, along with ongoing inventory issues and negative consumer sentiment," wrote analyst Kate McShane in a note to clients.
The note from Goldman comes after the struggling retailer shared a strategic update earlier this week that included plans to close stores and trim its workforce by 20% in bid to reverse its continued cash burn.
— Samantha Subin
July factory orders show surprise decline
New orders for manufactured goods fell 1% in July, the Census Bureau said Friday, dropping for the first time this year.
The decline was a surprise, with economists surveyed by Dow Jones expecting an increase of 0.2%. The fall is a significant change from the revised growth of 1.8% in June.
Shipments, which had risen for sixteen straight months, fell 0.9%.
— Jesse Pound
Three-quarters point fed funds rate boost in September not off the table, investors say
Jim Paulsen, chief investment strategist at Leuthold Group, said August's nonfarm payrolls report isn't the final word for the Federal Reserve as to September rate policy.
"I think we'll have to get through the CPI report. This doesn't take 75 off the table but it leans it more toward 50," Paulsen said.
The Fed next meets in three weeks, on Sept. 20-21.
Greg Faranello of AmeriVet Securities said the fed funds futures had an 80% chance of a 75-basis point hike for September before the August jobs report. That has now fallen to just under 70%.
Ben Jeffery, BMO rate strategist, said the 2-year Treasury yield is moving the most Friday, reflecting lowered expectations for Fed rate hikes. The odds of a 75-basis point rate hike in September shifted slightly lower after the report.
August payrolls were "good in terms of the Fed's goals and it was pretty much consensus in terms of what the Street was looking for," Jeffery said. "It should offer a little bit of calm to the market after the volatility this week."
— Scott Schnipper and Patti Domm
Stocks open higher after strong August jobs report
Stocks popped at the open on Friday, extending gains from the final minutes of the previous session after the August jobs report came in about as expected.
The Dow Jones Industrial Average jumped about 140 points, or 0.5%, while the S&P 500 and Nasdaq Composite added 0.6% each.
The major averages are still on track to post their third consecutive down week.
— Tanaya Macheel