Wall Street Turbulence: Stocks Tumble and Bonds Rally Amid Job Market Uncertainty

Stocks Tumble, Bonds Rally as Jobs Data Fuels Uncertainty on Wall Street

Treasury yields fell as investors considering the possibility of a jumbo 50 basis-point rate cut at the Fed's next meeting later this month. U.S. stocks slumped on Friday after U.S. jobs data provided investors little clarity on either the health of the economy or the outlook for interest rate cuts. The U.S. added 142,000 jobs in August, a rebound from July's bleak print of 89,000 but still below economists' expectations. The unemployment rate, which surprisingly jumped to 4.3% in July, ticked down to 4.2% last month. Stocks tumbled after the report, with the Nasdaq Composite and S&P 500 giving up early gains to trade down about 2.6% and 1.7%, respectively, around midday. The Dow Jones Industrial Average, which traded in the green for the first 30 minutes of Friday's session, gave up its gains to trade down 0.9%. Tech stocks, which have been particularly volatile over the past month, were the biggest decliners Friday. AI darlings Super Micro Computer (SMCI) and Nvidia (NVDA) tumbled more than 5%. As investors shunned risk, the consumer staples, healthcare, and utilities sectors -- replete with dividend payers known for holding up during recessions -- were the market's best performers. Today's is the second consecutive jobs report to trigger panic on Wall Street. Stocks sold off in early August after July's report raised concerns that the economy was slipping into recession. While Friday's report was less dreary than its predecessor, it did little to clarify how much the Federal Reserve will cut interest rates later this month. The Fed has long been expected to cut interest rates gradually, by 25 basis points at a time, to avoid reigniting inflation. But the likelihood of larger cuts may have increased as evidence of a softening labor market has piled up. Shortly after the employment numbers were released Friday, traders were pricing in about a 50% likelihood that the Fed would cut rates by 50 basis points this month, according to CME Group's FedWatch Tool, which uses federal funds futures trading data to quantify rate cut expectations. The likelihood had fallen to around 30% by noon, but the discussion around how fast and deep the cuts should be has only intensified after Friday's jobs report. Treasurys rallied, pushing yields lower. The yield on the 10-year Treasury, which is sensitive to interest rate expectations, jumped then fell then jumped again in the minutes after the data's release. The yield was at 3.70% recently, after falling as low as 3.66%, its lowest level in more than a year. The 2-year yield fell further, expanding the spread between it and the 10-year note. The gap between the two is a closely watched proxy for the yield curve, which inverted -- meaning short-term debt yielded more than long-term debt -- in July 2022. Only in the last few days has the curve flirted with sustainably reverting to its normal state as economic data and dovish positioning by the Fed have nudged interest rate forecasts lower. Though, to many on Wall Street, the yield curve's steepening doesn't necessarily mean the U.S. economy is out of the woods. "The historic precedent isn't particularly favourable on this front," wrote Deutsche Bank analyst Jim Reid in a note Thursday, "as in previous cycles the final stage before the recession was actually a re-steepening of the curve back into positive territory."

Treasury Yields Plunge, TLT ETF Tops $100, VIX Spikes As 50-Basis-Point Rate Cut Odds Soar In Response To Jobs Data - NVIDIA (NASDAQ:NVDA), Invesco CurrencyShares Japanese Yen Trust (ARCA:FXY)

Market odds of a 50-basis-point rate cut surgee to 61%, overtaking a 39% chance of a 25-basis-point cut. The U.S. Treasury market rallied sharply on Friday after August labor data showed weaker-than-expected job growth, bolstering bets on Federal Reserve interest rate cuts. The U.S. economy added 142,000 nonfarm payrolls last month, an increase from 89,000 in July but missing the expected increase to 160,000. The unemployment rate ticked down by 0.1% to 4.3% as expected, while wages displayed higher-than-forecasted growth. Market-implied odds of a 50-basis-point rate cut in September surged to 61% as of 11:05 a.m. in New York, overtaking the 39% probability of a 25-basis-point cut, according to the CME Group's FedWatch data. September Rate-Cut Probabilities After August Jobs Data Traders poured into bonds amid growing expectations of declining interest rates, driving yields sharply lower across the Treasury curve. The policy-sensitive two-year yield dropped over 10 basis points, reaching 3.59% at 11:15 a.m. in New York, its lowest level since March 2023. The 10-year Treasury yield fell 6 basis points to 3.67%, marking its lowest point since June 2023. This movement has led to a positive slope in the Treasury yield curve from the 10-year onward, effectively ending the more than two-year period of yield curve inversion. Chart: US Yield Curve Normalizes, Ending 2-Year Inversion Market Reactions Rate-cut expectations and falling Treasury yields triggered sharp moves across asset classes, with bonds rallying, the dollar weakening against the yen and equity markets sliding. "No sooner than the payroll print hit, the algorithms marched into high gear, pushing Treasury yields lower as the disappointing headline number, coupled with a series of downward revisions, suggested a more dire economic backdrop perhaps requiring a heavier dose of Fed medicine on Sept. 18," said Quincy Krosby, chief global strategist for LPL Financial. Markets are wrestling with whether the August payroll data signals a labor market returning to pre-COVID norms or an economy losing critical momentum, Krosby said. Treasury-related ETFs surged, with the iShares 20+ Year Treasury Bond ETF TLT rising 1.1% to $100.65, on pace for its highest close since late July 2023. The Japanese yen strengthened as well, with the Invesco CurrencyShares Japanese Yen Trust FXY gaining over 1%, poised to close at its highest level since early January 2024. Volatility spiked, as the CBOE Volatility Index (VIX) jumped 14% to 23. Wall Street flipped to the red, with the SPDR S&P 500 ETF Trust SPY dropping 1.5% on Friday, extending its weekly decline to 3.9%, on track for the worst weekly performance since March 2023. Tech stocks were hit hardest, with the Invesco QQQ Trust QQQ down 2.4%, pushing its weekly loss past 5%. Nvidia Corp. NVDA tumbled 4%, extending its weekly loss to 14%, its worst performance in two years. Read Next: AI Tech Sector 'Is Not In A Bubble,' But Diversification Out Of Magnificent 7 Is Key, Goldman Sachs Says Photo via Shutterstock. Market News and Data brought to you by Benzinga APIs