The S&P 500 index suffered its most significant weekly drop in over a year and a half, marking a sharp downturn not seen since the banking crisis in March 2023. This decline was triggered by a weaker-than-anticipated labor market report, prompting investors to retreat from riskier assets after three consecutive weeks of gains.
Friday witnessed a pronounced “risk-off” session on Wall Street, with the S&P 500 closing 1.7% lower, extending the weekly loss to 4.1%. The tech sector bore the brunt of the selling pressure, with the Invesco QQQ Trust, tracking major tech stocks, plunging 2.6% on Friday, leading to a 5.8% weekly loss—the most substantial since October 2022.
Semiconductors, in particular, experienced heavy selling. The iShares Semiconductor ETF, a benchmark for the sector, plummeted 4.3% on Friday alone, resulting in a staggering 11.8% weekly decline—its worst performance since March 2020.
Cooling Employment Numbers Fuel Risk-Off Sentiment
The Friday selloff was primarily fueled by the latest labor market data. The U.S. economy added only 142,000 nonfarm payrolls in August, falling short of the projected 160,000 and significantly below the one-year average of 202,000 new jobs per month. While the unemployment rate ticked down slightly to 4.2% from 4.3%, aligning with expectations, wage growth offered a mild upside surprise.
Veteran Wall Street investor Ed Yardeni acknowledged the weaker-than-expected employment report but maintained that a recession is not imminent. He highlighted that while employers are not engaging in widespread layoffs, their demand for new hires has slowed, coinciding with an increased supply of labor. Bank of America economist Shruti Mishra echoed this sentiment, stating that the moderation in the labor market is characterized by low layoffs and a slowdown in hiring.
In response to the softer jobs data, Bank of America adjusted its forecast for Federal Reserve rate cuts. Previously, the bank had anticipated 25 basis point cuts per quarter starting in September. However, the firm now predicts the Fed will reduce rates by 25 basis points at each meeting for the next five sessions, bringing the policy rate down to 4% by March 2025.
Key Drags on the S&P 500 on Friday
Here’s a breakdown of the five largest contributors to the S&P 500’s decline on Friday:
*
NVIDIA Corporation (NVDA):
-4.04%*
Broadcom Inc. (AVGO):
-10.35%*
Amazon.com, Inc. (AMZN):
-3.64%*
Tesla, Inc. (TSLA):
-8.44%*
Microsoft Corporation (MSFT):
-1.63%Semiconductor Sector Struggles
The semiconductor sector faced significant challenges, with major players among the worst performers on Friday:
*
Broadcom Inc.:
-10.35%*
Wolfspeed, Inc.:
-6.53%*
ASML Holding N.V.:
-5.37%*
Rambus Inc.:
-5.28%*
Marvell Technology, Inc.:
-5.25%The recent market downturn, particularly affecting tech stocks and semiconductors, underscores the sensitivity of investors to economic data and the potential implications for the Federal Reserve’s monetary policy. The slowdown in job growth and the subsequent adjustments to rate cut forecasts inject a considerable degree of uncertainty into the market outlook.
