Market

Dow sinks 140 points as data shows economy produced weaker-than-expected 235,000 jobs in August

U.S. stock indexes retreated Friday, after a report on monthly employment from the Labor Department came in far weaker than had been anticipated, sparking fresh questions about the labor markets recovery from the COVID-19 pandemic amid the spread of the delta variant.

How are stock futures trading?

The Dow rose 131.29 points on Thursday to finish at 35,443.82, while both the S&P 500 and the Nasdaq Composite closed at new records, climbing 0.3% to 4,536.95 and 0.1% to 15,331.18, respectively.

What’s driving markets?

Job creation in August weakened significantly and the mood on Wall Street darkened somewhat for stock-market bulls.

Data from the Labor Department showed that the U.S. economy added 235,000 jobs in August, far smaller than forecast for an increase of 720,000. The unemployment rate, meanwhile, dropped to 5.2% from 5.4% and touched a new pandemic low. 

The “headline number is obviously disappointing—much lower than expectations—and markets will react. But the interesting question is why the number is so low,” said Brad McMillan, chief investment officer at Commonwealth Financial Network, in a daily note. “The takeaway here is that much of the weakness comes from the rise in medical risks, rather than a general slowdown in the economy which is also consistent with the weak consumer confidence numbers.”

Despite the figures the weaker-than-expected headline figures, the data for the two previous months were raised. June job gains were lifted to 962,000 from 938,000 and July job gains were raised to 1.05 million from 943,000.

On top of that wages grew on the month. Average hourly earnings, month-over-month, rose 0.6% versus 0.3% expected and 0.4% in July and on a year-over-year basis, wages rose 4.3%, compared with 3.9% expected and 4.0% last month.

“Friday’s jobs report showed a significant slowing in hiring, but a surge in wage growth, which is a worrisome combination for the economy,” wrote Jay Pestrichelli, CEO of ZEGA Financial, a West Palm Beach, Fla., investment firm managing $600 million. “Slow economic growth and rising inflation is the worst case scenario for the economy,” he wrote in emailed remarks.

Still, the overall report may raise some questions about whether the Federal Reserve could delay its long-anticipated plan to start dialing back asset purchases and other policies that have been viewed as accommodative.

Fed Chairman Jerome Powell has signaled that the central bank would use employment as a key indicator while it considers the end of its pandemic-era measures to add liquidity to markets.

“After having indicated a taper was likely in the next few months, August payrolls perhaps throws that into disarray,” wrote Principal Global Investors’ Chief Strategist Seema Shah, in emailed comments.

“Of course, inflation has been running at multi-decade highs, and has clearly met the ‘substantial further progress’ test—yet that doesn’t appear to have made sufficient an impression on the Fed, the strategist wrote.

Wednesday’s ADP jobs report, in some ways an opening act for the end-of-week headliner, also fell far short of expectations, signaling the economy still has room to run.

“Indeed, with their conviction that inflation will ultimately prove transitory, the Fed is currently much more focused on the employment recovery, implying that today’s very weak number will likely sway the Fed to a November taper, if not later,” Shah wrote.

Sharing the U.S. economic data spotlight with nonfarm payrolls is the Institute for Supply Management’s services index and the final Markit services PMI for August due later Friday.

Elsewhere, Japanese stocks far outperformed their Asian peers after Prime Minister Yoshihide Suga, whose government has come under fire for its handling of the pandemic, said he would resign ahead of national elections this year

“Ahead of the all-important U.S. jobs numbers, the big story of the day has been the Nikkei’s 2% surge,” said Russ Mould, an analyst at broker AJ Bell.

“The market’s reaction to his announcement would suggest investors are optimistic that the country will find a stronger leader. Mining, healthcare, real estate and technology stocks all pushed forward on the main Japanese index,” Mould noted.

Meanwhile, Chinese stocks felt a pinch after weak economic data from the August services purchasing managers index (PMI), which came in at 46.7, below the 52.0 expected and a decline from 54.9 in July. 

Which companies are in focus
  • Shares of Uber Technologies Inc. UBERwere in focus Friday, as the ride-sharing company was set to benefit from a potential investment in China-based rival Didi Global IncDIDI by China’s government, according to Gordon Haskett analyst Robert Mollins. 

  • Kraft Heinz CoKHC disclosed Friday that it will pay a $62 million civil penalty to settle an investigation by the Securities and Exchange Commission into accounting policies, procedures and internal controls.

  • Shares of Apple Inc. AAPL were in focus Friday, after Wedbush’s longtime bullish analyst Dan Ives said underlying demand for iPhones continues to look strong ahead of the launch of the newest version.

How are other assets faring?
  • The 10-year Treasury note yields
    TMUBMUSD10Y,
    1.327%

    1.33%, up 3 basis points on the session.

  • The ICE U.S. Dollar Index
    DXY,
    -0.09%

    was off 0.1% at 92.13.

  • In Asia, the Shanghai Composite
    SHCOMP,
    -0.43%

    slipped 0.3% and the Hong Kong Hang Seng Index
    HSI,
    -0.72%

    dropped 0.7% into the red, while Tokyo’s Nikkei 225
    NIK,
    +2.05%

    rose 2%

  • In Europe, London’s FTSE 100
    UKX,
    -0.33%

    was 0.2% higher as the pan-European Stoxx 600
    SXXP,
    -0.61%

    fell 0.1%; Paris’ CAC 40
    PX1,
    -1.11%

    declined 0.3% and Frankfurt’s DAX
    DAX,
    -0.51%

    moved 0.1% into the green

  • Oil prices have consolidated gains made in Thursday’s rally, with international benchmark Brent
    BRN00,
    -0.12%

    crude more than 0.2% higher on the day and holding above $73 a barrel

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