Wall Street saw steep declines on Friday on the heels of a mixed August jobs report as traders ditched their long positions ahead of the Labor Day weekend.
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The Dow Jones Industrial Average was 272 points lower, or 1.67% to 16102. The S&P 500 declined 29 points, or 1.53% to 1921, while the Nasdaq Composite shed 49 points, or 1.05% to 4683.
All ten S&P 500 sectors were in negative territory, with telecom, energy, and materials falling the most.
All eyes on Wall Street were on the all-important August non-farm payrolls report, which showed the U.S. economy created 173,000 jobs, short of expectations for an additional 220,000 jobs. Meanwhile, the unemployment rate fell to 5.1% for the month from 5.3% in July. Economists had forecast a shallower drop to 5.2%. The labor force participation rate held steady at 62.6%.
While monthly jobs reports generally always garner attention on the first Friday of every new month, this one has traders especially intrigued. It was the last significant read on the American labor market ahead of the Federal Open Market Committee’s September 16-17 policy meeting – one in which many on the Street still expect members to decide to begin raising short-term interest rates from historic lows. At the very least, traders hope to see any hints of when the increases might come.
Aaron Clark, portfolio manager for GW&K’s two larger-cap equity strategies, said the report likely isn’t enough to keep the Fed standing still in September.
“August is typically weak and gets revised up,” he said. “The July revisions have it looking like a pretty solid number, and the unemployment rate in August of 5.1% was pretty solid. I don’t think the numbers are low enough to keep the Fed on hold. But it’s in a real pickle as it can’t really act on its own accord; they have to pay attention to developments in the global economy. If it was just the U.S. economy, we’d have a green light for moving in September.”
After of the report, the euro traded down 0.05% against the U.S. dollar, while the yield on the benchmark 10-year U.S. Treasury bond declined 0.010 percentage point to 2.158%.
“This was the big report everyone was waiting for. It’s the Friday before Labor Day, so trading today will be thin,” Clark said. “There’s really no strong reason as to why [futures extended declines]. Yesterday shaped up to be strong, then faded toward the end a bit..nothing big driving action, likely just a continuation of weakening from yesterday and concerns ahead of the number.”
In commodities, global oil prices fell slightly, taking a breather from steep movements in either direction over the last week. U.S. crude dropped 1.60% to $46.00 a barrel, while Brent, the international benchmark fell 2.27% to $49.53 a barrel.
Gold was also in negative territory, falling 0.32% to $1,120 a troy ounce, while silver declined 1.27% to $14.52 an ounce. Copper traded 2.96% lower to $2.31 a pound.
Elsewhere in the world, European markets were lower as a European Central Bank-induced rally lost steam.
“Equity traders decided that the ECB’s comments indicated that the current September date for the end of their QE programme was now likely to be extended,” IG Market Analyst Alastair McCaig wrote. “Mario Draghi’s ‘whatever it takes’ tag line still carries credibility with investors, even if they would have preferred a more explicit commitment.”
The Euro Stoxx 50, which tracks large-cap companies in the eurozone dropped 2.75%. The German Dax slid 2.71%, while the French CAC 40 declined 2.81% and the UK’s FTSE 100 fell 2.44%.
Over in Asia, where Chinese equity markets are closed for a two-day commemoration of the end of WWII, markets also saw red. Hong Kong’s Hang Seng index slipped 0.45%, while Japan’s Nikkei dropped 2.15%.