Wall Street drops, Treasury yields lower after US data

by Jonathan Adams
Wall Street rally

The Dow Jones Industrial Average fell about 0.4% and the S&P 500 fell 0.5%, and the technology-heavy Nasdaq Composite index fell about 0.4%

Stocks on Wall Street fell on Friday, with the U.S. dollar and Treasury yields lower, after the government jobs report showed a slowdown but still tight U.S. labour market.

Nonfarm payrolls increased by 187,000 jobs last month, the Labor Department said in its jobs report, slightly below expectations for 200,000 jobs. At the same time, the unemployment rate fell to 3.5% from 3.6% in June.

This is still not the picture of the labour market we would expect to see if the economy were in danger of decelerating dramatically in the short term, although without question there are signs of moderation, Rick Rieder, BlackRock’s chief investment officer of Global Fixed Income, said in a statement.

Rieder added that the moderation in hiring allows the U.S. Federal Reserve and other central banks to utilize time as the primary tool and hold rates at restrictive levels for longer.

The Dow Jones Industrial Average fell about 0.4% and the S&P 500 fell 0.5%, reversing gains recorded earlier in the day. The technology-heavy Nasdaq Composite index fell about 0.4%, supported by an 8% rise in Amazon.com, which reported sales and profits that beat analysts’ estimates. Apple expects sales to continue in the current quarter; its shares were down nearly 5%.

European stock indices held on to their gains, with the STOXX 600 up 0.3% on the day and London’s FTSE 100 up around 0.5%.

The MSCI All-World Index fell 0.1% on the day, down 2.6% in August, thanks in part to a rise in government bonds this week after other data showed a slowdown in inflation and expectations of a deluge of US Treasury supply.

Economists who predicted a long-term recession from the fourth quarter of this year strongly believe that the soft landing scenario for the economy that the Fed envisages is possible now.

Randy Frederick, managing director of trading and derivatives at Charles Schwab in Austin, Texas, said the mixed jobs report “plays into the soft landing, or the no-landing, narrative that the markets have been slowly trudging higher on.”

This ought to relieve some of that concern about the fact that the economy is too strong, which would cause concern that perhaps we get another rate hike in September, Frederick added.

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