Wall Street ends sharply lower as jobs report cements rate hike regime

US stocks fell sharply on Friday (Oct 7) following a solid jobs report for September that increased the likelihood the Federal Reserve will barrel ahead with an interest rate hiking campaign which many investors fear will push the US economy into a recession.

The Labour Department reported the unemployment rate fell to 3.5% – lower than expectations of 3.7% – in an economy that continues to show resilience despite the Fed’s efforts to bring down high inflation by weakening growth.

The Dow Jones Industrial Average closed down 630.15 points or 2.11% at 29,296.79, the S&P 500 lost 104.86 points or 2.80% to 3,639.66 and the Nasdaq Composite dropped 420.91 points or 3.8% to 10,652.41.

Non-farm payrolls rose by 263,000 jobs, more than the 250,000 figure economists polled by Reuters had forecast. Money markets raised to 92% the probability of a fourth straight 75 basis-point rate hike when Fed policymakers meet on Nov. 1-2, up from 83.4% before the data.

The job gains, lower unemployment rate and continued healthy wage growth point to a labour market Fed officials will likely still see as keeping inflation too high.

In the latest of a steady stream of hawkish messages by policymakers, New York Fed President John Williams said more rate hikes were needed to tackle inflation in a process that will likely increase the number of people without jobs.

The data cemented another jumbo-sized, 75 basis-point rate hike in November as “the labour market is still way too hot for the Fed’s comfort zone,” according to GW&K Investment Management global strategist Bill Sterling.

“This was a classic case of good news is bad news,” he said. “The market took the good news of the robust labour market report and turned it into an ever-more vigilant Fed and therefore potentially higher risks of a recession next year.”

One economist said the Fed should not be reassured by the tight labour market because when the unemployment rate begins to rise, it does so quickly and is a leading indicator of a recession.

“We haven’t felt the full effects of the tightening,” said SMBC Nikko Securities chief US economist Joseph LaVorgna. “They’re going to keep going until eventually, this thing turns over and when it turns over, you won’t be able to slow the momentum.”

Next week’s consumer price index will provide a key snapshot of where inflation stands.

Despite Friday’s nosedive, a hefty two-day rally earlier in the week pushed the S&P 500, the Dow and the Nasdaq to post their first week of gains after three straight weeks of losses.

Volume on US exchanges was 11.15 billion shares compared with the 11.73 billion average for the full session over the past 20 trading days.

For the week, the S&P 500 rose 1.51%, the Dow added 1.99% and the Nasdaq gained 0.73%.

All 11 major S&P 500 sectors declined, with technology falling the most, down 4.14%.

The Philadelphia SE Semiconductor index fell 6.06% after a revenue warning from Advanced Micro Devices signalled a chip slump could be worse than expected. The index posted its biggest single-day percentage decline in more than three weeks.

AMD shares fell 13.9% as the company’s third-quarter revenue estimates were about US$1 bil lower than previously forecast. It was the largest declining stock on the Nasdaq 100.

Declining issues outnumbered advancing ones on the NYSE by a 5.78-to-1 ratio; on Nasdaq, a 4.56-to-1 ratio favoured decliners.

The S&P 500 posted two new 52-week highs and 71 new lows; the Nasdaq Composite recorded 27 new highs and 337 new lows. – Oct 8, 2022

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