Stocks lose ground on recession fears
NEW YORK – Good news on the economy remains bad news for Wall Street, as stocks fell sharply Friday on worries a still-strong U.S. jobs market may actually make a recession more likely.
The S&P 500 ended 2.8% lower after briefly dropping 3.3% as traders weighed a government report showing employers hired more workers last month than economists expected. The Dow Jones Industrial Average fell 2.1%, and the Nasdaq composite lost 3.8%.
Wall Street is worried the Federal Reserve could see that as proof the economy has yet to slow enough to get inflation under control. That could clear the way for the Fed to continue hiking interest rates aggressively, risking causing a recession.
“The employment situation is still good, and that might be a little frustrating to the Fed,” said 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 managed to notch a gain for the week, thanks to a powerful but short-lived rally Monday and Tuesday.
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.
Also discouraging for investors was that the unemployment rate improved partly for the wrong reasons. Among people who aren’t working, fewer than usual are actively looking for jobs. That’s a continuation of a longstanding trend that could keep upward pressure on wages and inflation.
By hiking interest rates, the Fed is hoping to slow the economy and jobs market. The risk is that if the Fed goes too far, it could squeeze the economy into a recession.