**NEW YORK — Stocks tumbled Friday on worries the U.S. economy could be cracking under the weight of high interest rates aimed at controlling inflation.**
The S&P 500 fell 1.8%, marking its first consecutive losses of at least 1% since April. The Dow Jones Industrial Average dropped 610 points, or 1.5%, and the Nasdaq Composite declined 2.4% as a global sell-off reached Wall Street.
A report showing that U.S. hiring slowed significantly more than expected last month sent fear through the markets, causing sharp drops in both stocks and bond yields. This followed a series of weaker-than-anticipated economic reports from the previous day, including a decline in U.S. manufacturing activity, one of the sectors most impacted by high interest rates.
Just a couple of days ago, U.S. stock indexes had their best day in months after Federal Reserve Chair Jerome Powell indicated that inflation had slowed enough for rate cuts to potentially begin in September.
Now, worries are rising that the Fed may have kept its main interest rate at a two-decade high for too long. A rate cut would make it easier for U.S. households and companies to borrow money and boost the economy, but it could take months to a year for the full effects to filter through.
“The Fed is seizing defeat from the jaws of victory,” said Brian Jacobsen, chief economist at Annex Wealth Management. “Economic momentum has slowed so much that a rate cut in September will be too little and too late. They’ll have to do something bigger than the traditional cut of a quarter of a percentage point to avert a recession.”
Traders are now betting on a 70% probability that the Fed will cut its main interest rate by half a percentage point in September, according to data from CME Group. This is despite Powell's statement on Wednesday that such a deep reduction is “not something we’re thinking about right now.”
Of course, the U.S. economy is still growing, and a recession is far from a certainty. The Fed has been clear about the tightrope it’s walking since it started hiking rates sharply in March 2022: Being too aggressive would choke the economy, but going too soft would give inflation more oxygen.
While refusing to claim victory on either the jobs or the inflation fronts on Wednesday, before the discouraging economic reports hit, Powell said Fed officials “have a lot of room to respond if we were to see weakness” in the job market after hiking its main rate so high.
“Certainly today’s job data feeds the weakening economy narrative, but I believe the market is overreacting at this point and pricing too much in on rate cuts at this stage,” said Nate Thooft, senior portfolio manager at Manulife Investment Management. “Yes, the economy is weakening, but I am not convinced there is enough evidence that the data so far is a death knell for the economy.”
U.S. stocks had already appeared to be headed for losses Friday before the disappointing jobs report thudded onto Wall Street.
Several major technology firms reported disappointing profits, continuing a trend of underperformance that started last week with Tesla and Alphabet.
Amazon's stock dropped 8.8% after it revealed revenue for the latest quarter that fell below expectations. The company also issued a forecast for summer operating profit that missed analysts' projections.
Intel saw an even steeper decline of 26.1%, its worst single-day performance in 50 years. The chipmaker’s profits for the quarter were far below forecasts, and it also announced the suspension of its dividend payment while predicting a loss for the third quarter, contrary to the anticipated profit.
In contrast, Apple remained relatively stable, rising 0.7% after reporting better-than-expected profit and revenue.
Apple and other leading tech stocks, collectively known as the "Magnificent Seven," were pivotal in driving the S&P 500 to record highs this year, largely due to enthusiasm for artificial intelligence. However, their strong performance faltered last month amid concerns that their valuations had become excessively high.
On Friday, tech stocks' declines dragged the Nasdaq Composite 10% below its record high from last month, marking a “correction” in market parlance.
In a silver lining for Wall Street, other sectors that had been battered by high interest rates began a sharp recovery last month while tech stocks faltered. However, these recovering areas also faced a downturn on Friday, with concerns that a fragile economy might undermine their earnings potential.
The Russell 2000 index, which represents smaller companies, saw a notable drop of 3.5%, outpacing the broader market’s decline.
In summary, the S&P 500 fell by 100.12 points to 5,346.56, the Dow Jones Industrial Average decreased by 610.71 points to 39,737.26, and the Nasdaq Composite dropped by 417.98 points to 16,776.16.
In the bond market, Treasury yields fell sharply as investors anticipated more aggressive rate cuts by the Federal Reserve. The yield on the 10-year Treasury note slid to 3.79% from 3.98% late Thursday and from 4.70% in April.
In international markets, Japan’s Nikkei 225 fell 5.8%, struggling since the Bank of Japan raised its benchmark interest rate on Wednesday. This rate hike has strengthened the Japanese yen against the U.S. dollar, potentially impacting profits for exporters and dampening a tourism boom.
Chinese stocks also declined as investors expressed disappointment with the government’s incremental measures to stimulate growth, rather than the anticipated broader stimulus. Meanwhile, stock indexes across much of Europe dropped by more than 1%.
Commodity prices experienced volatility this week. Oil prices surged after the deaths of Hamas and Hezbollah leaders raised concerns about potential disruptions to the Middle East’s crude supply. However, prices reversed on Thursday and Friday due to fears that a weakening economy would reduce fuel consumption. A barrel of benchmark U.S. crude fell back below $74 on Friday, after starting the week above $77.