Stock Market News From Aug. 2, 2024: Why the Stock Market Is Down Today; Nasdaq Enters Correction Territory; Treasury Yields Dip; Recession Fears Ignite; and More News (2024)

Today's Selloff, Explained

The U.S. economy created fewer jobs than expected in July, showing further cooling in the labor market from last year’s overheated levels. Employers added 114,000 nonfarm payrolls last month, below expectations for a gain of 175,000.

The latest updates on U.S. manufacturing on Thursday and today’s jobs report have introduced fears that Fed rate cuts could be behind the curve.

Bond prices rallied again, with the yield on the 2-year Treasury note dropping to 3.87%. The 10-year yield was down to 3.795%.

Follow live coverage of the July jobs report here.

The Nasdaq Composite closed in correction territory for the first time since the fall on Friday, as stocks entered risk-off mode in the wake of a weak jobs report.

The tech-heavy index fell 2.4% to about 16,776, closing below the 16,782.70 level that represents a 10% decline from its July 10 record close. The S&P 500 sank 1.8%. The Dow fell 611 points, or 1.5%.

The Russell 2000 was hit especially hard after soaring in July. The yield on the 2-year Treasury note fell to 3.87%, its lowest level since May 4, 2023. The 10-year yield was down to 3.795%, its lowest since March 6, 2020. Tech stocks had previously benefited from falling yields, but that was when hopes about rate cuts were driving the moves.

A weak update on monthly jobs and a soft manufacturing reading this week have had the market reconsidering bets on a stable economic picture as the Federal Reserve looks to start cutting interest rates. It will take some signs of like from the economy in the weeks ahead to brighten that picture.

Fed-funds futures are now pricing in a 73.5% chance of a 50 basis point interest rate cut in September, according to the CME FedWatch Tool. That would signal the Fed is more worried about the economy than in recent months. Of course, futures have been wrong for most of this year, so take that with a grain of salt.

The July jobs report forced market participants to grapple with signs of slowing economic growth, though fears about an imminent recession may be overblown.

The Dow was down 772 points, or 1.9%, in recent trading. The S&P 500 was down 2.2%. The Nasdaq Composite was down 2.7%, on track to close in correction territory for the first time since last fall.

The stock market has marched higher in recent months despite a trickle of data that suggested the economy was starting to show some cracks. Federal Reserve officials, including Chair Jerome Powell, have said the central bank’s goals of ensuring price stability and maximum employment have become more in balance—meaning inflation is no longer the main focus for the Fed.

The central bank has been trying to navigate a golden path forward where inflation cools but the economy slows without plummeting to a more pronounced downturn. This is the difference between a soft landing and a hard landing. Sevens Report Research’s Tom Essaye argues the latest data doesn’t rule out a soft landing, though some market participants had until recently ruled out a hard landing.

“We started the landing a couple months ago,” Essaye says. “It’s no different than when you're on an actual plane. Sometimes the plane descends more quickly than other times, but that doesn't mean that you're crashing.”

Essaye argues summer jobs numbers are generally volatile, so he doesn’t expect the Fed to start panicking. He also notes other economic metrics like retail sales and durable goods, while slowing, are not showing extreme weakness. On the flip side, he thinks a market that had been oblivious to slowing growth could show signs of weakness in the coming weeks.

“The data was not that bad,” Essaye says. “The fact that the S&P 500 is down two and a half percent is more a function of the market's complacency toward this risk, rather than it is the risk actually becoming substantially greater.”

When the world feels like it’s crumbling, investors flock to safety by buying the dollar, the global reserve currency. But when the problem is more internal, expect the opposite.

That’s essentially what was going down on Friday. A pair of bad economic reports, which revealed a weakening labor market and a slowdown in manufacturing, soured investors on the outlook for U.S. growth.

In response, the U.S. Dollar index (DXY)—a gauge of the dollar’s value relative to other trading partners—was down 1.11%, on pace for its largest one-day percentage decline in more than eight months, according to Dow Jones Market Data.

Weak economic data can lead to investors seeking alternative safe-haven assets or currencies of other developed markets, which can also weaken the dollar.

Plus, there’s a great probability of deeper interest rate cuts by the Federal Reserve. Economists at Citigroup now expect 125 basis points of rate cuts this year, up from 75 basis points earlier.

Lower interest rates typically decrease the yield on dollar-denominated assets, making the dollar less attractive for foreign investors to buy and hold.

The big winner in the currency world this week has been the yen. It rallied sharply following the Bank of Japan’s rate hike decision.