Wall Street began September with a significant downturn, as the Dow Jones Industrial Average fell by 626 points, or 1.5%, on Tuesday (September 3). This drop was largely due to a disappointing economic report from the Institute for Supply Management, which indicated a fifth consecutive month of declines. This has sparked concerns that the Federal Reserve's aggressive rate hikes may have caused significant harm to the US economy.
Investors were already on edge due to a month filled with significant economic news, including Friday's crucial jobs report, next week's inflation readings, and the anticipated rate cut from the Fed later in the month. The broader market also experienced a downturn, with the Nasdaq Composite ending the day with a 3.3% loss. This was largely due to tech investors' concerns over Nvidia's 9% plunge, raising questions about the valuation of the AI chipmaker and the overall impact of AI technology on tech companies' bottom lines. The S&P 500 also closed about 2% lower.
According to CNN, September has historically been a challenging month for stocks. This downturn follows a similarly difficult start to August, when markets reacted to a weaker-than-expected jobs report, fueling fears that the Fed had mishandled inflation and pushed the economy towards a recession.
Despite these concerns, markets corrected themselves and ended August with gains. However, concerns about the state of the labor market persist. Mark Hamrick, a senior economic analyst at Bankrate, noted that recent softness in the labor market, coupled with substantial negative benchmark revisions subtracting more than 800,000 jobs in payrolls from April 2023 to March of this year, underscores downside risks for the economy.
The jobs report due on Friday is considered a crucial piece of economic data that central bank officials will need to analyze before their monetary policy meeting on September 17-18. A weak headline number coupled with a higher unemployment rate could push the Fed to implement a significant half-point rate cut to get the economy back on track. A softer number would mean a quarter-point hike. Regardless of the outcome, consumers and businesses are eagerly awaiting any relief that lower interest rates will bring, such as less punishing loan rates, mortgage rates, and other borrowing costs.