Whether this is the correction investors have been waiting for may become clear in the coming week, after a weak jobs report heightened concerns about slowing economic growth and revised the outlook for monetary policy. Stocks ended the week plunging after July’s non-farm payrolls report fell well short of Wall Street expectations, signaling a strong labor market that has finally faltered after a U.S. economy boosted by persistent inflation and a historically aggressive cycle of rate hikes. On Friday, the Nasdaq, which is dominated by technology stocks, closed down 10% from its recent high. The S&P 500 fell 2% this week. U.S. Treasury yields also fell sharply. On Friday, the 10-year Treasury yield fell as low as 3.79%, its lowest level since December and down from 4.20% last Friday. Investors expect volatility ahead as markets increasingly price in the possibility of an economic slowdown or even a recession, just weeks after the S&P 500 and Nasdaq Composite rose to record highs in July. Lasts one week. “It’s not unusual for the market to have a 10% correction. We typically get one on average a year,” said Bill Hornbarger, investment director at Benjamin F. Edwards. “I think it’s weak. The (economic) data is just a good excuse for people to take profits.” As of Friday, the Nasdaq was down more than 10% from its recent high, while the S&P 500 was down 5.7%. Small-cap stocks, represented by the Russell 2000 Index, are down more than 8% from their 52-week high. Recession fears grow The July jobs report released early Friday triggered a widely watched recession indicator, called a recession indicator named after economist Claudia Sahm. The “Sahm Rule” indicator flashes when the three-month moving average of the U.S. unemployment rate is half a percentage point above the cycle low. Wall Street’s “fear gauge” also jumped to its highest point since March 2023. Michael Kantrowitz wrote in a note on Friday that lower interest rates are “no longer a bullish catalyst” for stocks, recommending allocations to higher quality stocks and prioritizing utilities. “We expect a positive correlation between interest rates and stock prices going forward,” Kantrowitz wrote. Others are more optimistic. Goldman Sachs Chief Economist Jan Hatzius said on Friday that he does not expect a recession, noting that with the federal funds rate currently at 5.25% to 5.50%, the Fed will have enough room to respond to any economic weakness. “They had a 525 basis point cut,” Hatzius told CNBC’s “Squawk on the Street.” “While I don’t expect a 50-basis-point move at the next meeting, they could do a lot of easing if necessary.” Markets last priced in a half-percentage point rate cut in September, according to data from the CME Group’s FedWatch tool The probability is 71%, up from 22% on Thursday. The market currently expects that the federal funds rate may be cut by 1.25 percentage points to 4.00% to 4.25%. “I think there’s a scenario that needs to be discussed for a faster normalization than that very slow pace in the dot chart, but we’re still going to have more information before the next (Fed policy) meeting,” Hatzius said. So, we don’t have to make that decision now.” Elsewhere, second-quarter corporate earnings will continue next week with a slew of reports. Some of the best-known companies include The Walt Disney Company, Caterpillar, Costco, Eli Lilly and Company, and Super Micro Computer Corporation. One week ahead calendar all times are Eastern Time. Monday, August 5, 9:45 a.m. Final PMI Composite Index (July) 9:45 a.m. Final S&P Services PMI (July) 10 a.m. ISM Services PMI (July) Profit: Simon Property Group, Diamondback Energy, Tyson Foods, Progressive Tuesday, Aug. 6, 8:30 AM Balance of Trade (June) Earnings: Super Micro Computer, Fortinet, Devon Energy, Airbnb, Wynn Resorts, Axon Enterprise, TransDigm Group, Yum Brands , Fidelity National Information Services, Uber Technologies, Marathon Petroleum, Caterpillar Wednesday, Aug. 7, 3 p.m. Consumer Credit (June) Earnings: Costco Wholesale, Warner Bros. Discovery, Occidental Petroleum, Ralph Lauren, CVS Health, Hilton Worldwide Holdings , The Walt Disney Company Thursday, August 8, 8:30 AM Continuing Jobless Claims (07/27) 8:30 AM Initial Claims (08/03) 10 AM Wholesale Inventory Final (June) Earnings: Gilead Sciences, Akamai Technologies, Take-Two Interactive Software, News Corp., Paramount Global, Expedia Group, Martin Marietta Materials, Eli Lilly and Company There were no noteworthy events on Friday, August 9th.
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