Stocks lose more ground on fears a recession may be looming

NEW YORK Good news on Wall Street remains poor news. Wall Street fell sharply Friday due to concerns that a strong U.S. jobs market could make a recession more likely.

The S&P 500 closed 2.8% lower than before, after briefly falling 3.3%. This was due to traders taking into account a government report that showed employers hired more workers in the last month than economists anticipated. The Dow Jones Industrial Average dropped 2.1%, while the Nasdaq composite lost 3.8%.

Wall Street fears that the Federal Reserve may see this as evidence that the economy is not slowing enough to bring down inflation. This could allow the Fed to increase interest rates aggressively. If done too often, it could lead to a recession.

” The employment situation is still strong and that might be frustrating to the Fed,” stated Brian Jacobsen (senior investment strategist at Allspring Global Investments). “The Fed thinks we need more people unemployed in order to make sure inflation comes down and stays down.”

Stocks have tumbled over 20% from records this year on worries about inflation, interest rates and the possibility of a recession.

The major indexes saw a week of gains thanks to a strong but brief rally Monday and Tuesday, after investors looked closely at weaker-than-expected economic data. This led to some investors believing that the Fed might ease up on rate hikes. However, Friday’s jobs report may have scuttled any hopes of a Fed “pivot”. This is a pattern that has been repeated many times this year.

” “For a lot of this year, there has been a degree false optimism among investors that the Fed will tap the brakes and pivot sooner then they’ve been saying they would for quite some time,” Bill Merz from U.S. Bank Wealth Management, head of capital markets research.

“The market is increasingly coming to terms with, albeit gradually, that the Fed is highly unlikely to pivot in the near-term as some have been hoping for.”

Employers added 263,000 jobs last month. That’s a slowdown from the hiring pace of 315,000 in July, but it’s still more than the 250,000 that economists expected. Another thing that discouraged investors was the fact that the unemployment rate rose partly due to the wrong reasons. Fewer people are actively searching for work than usual, even if they aren’t working. This is a continuation of a long-standing trend that could continue to increase inflation and wages.

” While we are not yet out of the woods, we should be closer as the effects of aggressive policy start to take root,” stated Matt Peron, director research at Janus Henderson Investors.

The Fed hopes to slow down the economy and the jobs market by raising interest rates. The Fed’s goal is to stop inflation from buying more to keep prices rising further. Already, the Fed has seen some results. Higher mortgage rates have hurt the housing industry. There is a risk that the Fed could go too far and cause a recession. Higher rates have a positive effect on the prices of stocks, cryptocurrencies, and other investments.

“Everything hinges on inflation at this point,” said Peter Essele, head of portfolio management for Commonwealth Financial Network. “We do think its going to moderate over the next few quarters.”

Altogether, many investors see Friday’s jobs data keeping the Fed on track to hike its overnight rate by three-quarters of a percentage point next month. It would be the fourth increase, which is three times the usual amount, and raise the rate to 3. 75% to 4%. It began the year at almost zero.

Crude oil saw its largest weekly gain since March. Benchmark U.S. crude jumped 4.7% to settle at $92. 64 per barrel Friday. Brent crude, the international standard, rose 3.7% to settle at $97.92. They have risen because oil-producing countries have promised to reduce production to keep prices high. This should keep inflation at a high, though hopefully it will ease. Inflation is still at a four-decade high, but is expected to moderate.

The rise in crude oil helped oil-related stocks to rise on Friday. Halliburton, an oilfield services provider, climbed 2%.

Stocks, a group of technology companies, led the way in the reverse direction. They have been the most affected by rising rates this year, which has made it difficult for investors to invest in the most risky, expensive, or slowing down their ability to reap the rewards of big growth.

Microsoft fell 5.1% and Amazon fell 4.8%.

All told, more than 90% of stocks in the S&P 500 closed lower Friday. The index fell 104. 86 points to 3,639.66. It ended the week with a 1.5% gain, its first weekly gain in 4 weeks.

The Dow dropped 630. 15 points to 29,296. 79, while the Nasdaq lost 420. 91 points to close at 10,652.40.

Smaller stock prices also lost more ground. The Russell 2000 index fell 50. 36 points, or 2.9%, at 1,702.15. Analysts believe that the next hammer to strike stocks will be higher interest rates. High inflation and high interest rates are affecting companies’ earnings while the economy slows.

Advanced Micro Devices fell 13.9% after it warned revenue for its latest quarter is likely to come in at $5.6 billion, below its prior forecasted range of $6.5 billion to $6.9 billion. AMD stated that the market for personal computers suffered a significant decline during the quarter, which could have a negative impact on its sales.

Levi Strauss fell 11.7% after it cut its financial forecast for its fiscal year. It cited the rising value of the U.S. Dollar against other currencies, which decreases the dollar value for sales made abroad, and a more cautious outlook on the economies in North America and Europe.

Treasury yields rose right after the jobs report was released, but they stumbled a bit afterwards. The yield on the 10-year Treasury, which helps set rates for mortgages and other loans, climbed to 3. 88% from 3. 83% late Thursday. The two-year yield, which closely tracks Fed action expectations, rose to 4. 30% from 4.26%. It climbed above 4.Earlier in the morning. 33% and was near its highest level since 2007.

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AP Business Writers Damian J. Troise, Joe McDonald and Matt Ott contributed. Veiga reported from Los Angeles.