What's behind the recent stock selloff?
The major stock indexes dropped significantly on Friday after a weaker-than-expected jobs report stoked worries of a possible recession.
In early trading, the S&P 500 was on pace for its worst trading day in about two years. The Dow Jones Industrial Average had fallen nearly 800 points, or about 2%. The tech-heavy Nasdaq had fared even worse, dropping more than 2%.
The stock decline on Friday followed unsteady performance over roughly the past month. Until then, stocks had enjoyed strong gains this year.
From the outset of 2024 through Thursday, the S&P 500 had climbed more than 15%. The Dow Jones Industrial Average and the Nasdaq had also seen double-digit increases.
The selloff is concerning since it’s rooted in a labor market cooldown that may signal a wider economic downturn, investors told ABC News. However, the solid state of the economy may very well allow it to weather the difficulty and send stocks back toward gains.
“We don’t think it’s the start of a bear market,” Adam Turnquist, chief technical strategist at LPL Financial, told ABC News, ruling out the possibility of an outcome in which a stock index has dropped 20% below its most recent high.
“Today’s weaker economic data is certainly concerning,” Turnquist added. “We don’t think it’s pointing to an imminent recession, but it certainly changes the narrative.”
A weaker-than-expected jobs report is fueling concern about a potential recession and calls for an interest rate cut.
Employers hired 114,000 workers last month, falling well short of economist expectations of 185,000 jobs, U.S. Bureau of Labor Statistics data showed. The unemployment rate climbed to 4.3%, the highest level since October 2021.
Still, the unemployment rate remains at a relatively low level in historical terms. Gross domestic product data last week showed that the U.S. economy grew much faster than expected over three months ending in June, according to the Commerce Department.
“The stock market is churning as investors try to figure out if current valuations are justified given the softening economic data seen in recent months,” Clark Bellin, president and chief investment officer at Nebraska-based Bellwether Wealth, told ABC News in a statement.
“Stock market volatility is very normal, and we believe the economy is still on a sound footing,” Bellin added.
The fresh jobs data extends a monthslong stretch of economic performance marked by the key conditions for a rate cut: falling inflation and slowing job gains.
In recent months, Fed Chair Jerome Powell has shifted focus to the central bank’s responsibility for maintaining a robust job market, in addition to its goal of controlling inflation.
“For a long time, since inflation arrived, it's been right to mainly focus on inflation. But now that inflation has come down and the labor market has indeed cooled off, we're going to be looking at both mandates,” Powell said last month at a meeting of The Economic Club of Washington, D.C.
On Wednesday, Powell said the Fed may cut interest rates at its next meeting in September, though he said the central bank would like to see further evidence that inflation is heading downward.
An interest rate cut would ease borrowing costs for consumers and businesses alike, which may rekindle economic activity and boost hiring.
Chris Zaccarelli, chief investment officer at North Carolina-based Independent Advisor Alliance, said it’s too early to tell whether the underwhelming jobs report on Friday foretells sustained losses for the stock market.
“If it turns out that this is just some noise in the labor market data and that stabilizes -- similar to how we had some noise in the inflation data earlier this year before that stabilized -- then this will be looked back at as a temporary period of weakness in the economy and stock market,” Zaccarelli told ABC News.
“However, if this is a beginning of a turn in the economy for the worse, then all bets are off,” Zaccarelli added.
