Dow tumbles 273 points on jobs report
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Sept. 4 — Bloomberg’s Matt Miller updates the latest markets news. He reports on “Bloomberg Markets.” Bloomberg
Stocks tumbled on Wall Street Friday as investors reacted to the August jobs report — the last monthly employment picture before the Federal Reserve’s key mid-September meeting on interest rates — which produced less new jobs than expected but the lowest reading on the nation’s unemployment rate in more than seven years.
The knee-jerk reaction from traders is that while the report was mixed and didn’t send a definitive signal as to what the data-dependent Fed’s next move will be, it could be strong enough for the Fed to hike rates in two weeks.
The Dow Jones industrial average fell 272 points, or 1.7%, to 16,102. The Standard & Poor’s 500 stock index dropped 30 points, or 1.5% to 1921. The Nasdaq composite declined 50 points, or 1.1% to 4684.
The downturn Friday capped off an ugly week for the markets in which the Dow plunged 3.2%, the S&P 500 fell 3.4% and the Nasdaq lost 3%. As bad as the week was, it didn't come close to what happened just two weeks earlier when the Dow and S&P skidded 5.8% and the Nasdaq tumbled 6.8%.
JJ Kinahan, chief market strategist at TD Ameritrade, says the market’s drop this morning could be more related to investors not wanting to take too much risk over the long holiday weekend, noting that Chinese markets, which have been closed the past two days, will reopen Monday while Wall Street is closed for Labor Day.
The jobs report is a market-moving data point, that was especially true this time because it could have swayed the Fed as it is considering raising interest rates for the first time in almost a decade. Wall Street is anxious because low borrowing costs have been a key underpinning of the stock market rally that began back in March 2009.
The economy created just 173,000 new jobs last month, the Labor Department said. But the unemployment rate dipped to 5.1%, a bigger-than-expected drop — and the lowest since April 2008, when the jobless rate was 5%, according to data from the U.S. Bureau of Labor Statistics. Wall Street economists were expecting 218,000 new jobs in August and the unemployment rate to decline to 5.2% from 5.3%.
In addition to the shrinking unemployment rate, job gains for July were revised up to 245,000 from 215,000, and June’s job gains were bumped up by 14,000. The upward revisions added to initial reaction that this is a more positive jobs report than the disappointing headline jobs number might indicate.
WILL THE FED RAISE RATES IN SEPT.: Here’s what Wall Street analysts are saying
Friday's reaction suggests investors are betting that the Fed could move to hike rates in two weeks, despite the fact the mixed report provides reason for both a hike and a delay, experts say.
“August's employment report is fairly mixed and can be used to make a case for or against a rate hike at the upcoming Fed meeting,” Paul Ashworth, chief U.S. economist at Capital Economics told clients in a research note. “As far as we're concerned, the September meeting is a 50-50 toss-up.”
A similar reaction was articulated by Steven Ricchiuto, chief economist at MSUSA. He notes that while the headline jobs number came in below expectations, positives such as the upward revisions to the prior two months job gains and the lowest unemployment rate in more than seven years, suggest that the bulls and bears will continue to hotly debate if Fed ‘lift-off’ will occur on Sept. 17.
The latest jobs data will leave everyone maintaining their position on the Fed. Not the decisive data the Street wanted,” Ricchiuto said in a research note.
Still, there are Wall Street pros that say the Fed will move at their September meeting.
The August “employment report supports our view that the Fed is likely to begin their rate hike cycle at the September 17th Fed meeting,” Maury Harris, an economist at UBS told clients in a note.
The Fed has been moving ever closer to a rate hike, but its calculus has been changed by the recent worldwide global turbulence, which has created a good deal of market instability at the same time it is readying to raise rates for the first time since 2006. While the Fed says it is moving closer to a hike, and has said it is looking for continued improvement in the U.S. labor market, there is a big debate on Wall Street now as to whether now is really the best time to boost rates.
Stocks around the globe were wobbly, with shares in Japan off 2.2% and down 0.5% in Hong Kong. European stock markets fell as Germany’s DAX index dropped 2.7% and London’s FTSE index dropped 2.4%.
The unemployment rate dipped to 5.1%, the lowest since April 2008, when the jobless rate was 5%, according to data from the U.S. Bureau of Labor Statistics. The economy created 173,000 new jobs last month.
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