Nasdaq 100: Index Enters Correction Territory as Weak Jobs Data Spurs Recession Fears

Market Tumble as Weak Jobs Report Sparks Recession Fears

U.S. stock markets experienced a significant downturn following a disappointing July jobs report, raising concerns about a potential economic recession.

Major Indices Plummet

The Dow Jones Industrial Average fell 810 points (2%), while the S&P 500 and Nasdaq Composite dropped 2.4% and 3% respectively. The Nasdaq entered correction territory, trading more than 10% below its recent all-time high.

Weak Jobs Data Shocks Investors

July’s nonfarm payrolls grew by only 114,000, falling short of the 185,000 expected by economists. The unemployment rate increased to 4.3%, its highest level since October 2021. This unexpected weakness in the labor market has intensified worries about the overall health of the economy.

Tech Sector Hit Hard

Major tech companies faced significant losses. Amazon slid 12.5% after missing revenue estimates and providing a disappointing forecast. Intel cratered 29% following weak guidance and announced layoffs. Nvidia lost over 5.5%, continuing its decline from the previous day.

Recession-Sensitive Stocks Decline

Stocks particularly vulnerable to a recession also suffered. Bank of America lost 3%, while Caterpillar shares also fell. The 10-year Treasury yield dropped to its lowest level since February as investors sought safety in bonds.

Market Forecast: Bearish Outlook

The weak jobs report has significantly altered market expectations for Federal Reserve policy. Traders now assign a 61.5% chance of a 50 basis point rate cut in September, up from just 22% the day before. This dramatic shift suggests a bearish short-term outlook for the market.

Investors are questioning whether the Fed’s current stance is appropriate given the apparent economic weakness. The market is now “wondering if the Fed is too late in transitioning monetary policy,” according to Quincy Krosby, chief global strategist at LPL Financial.

With volatility spiking, as evidenced by the VIX reaching its highest level since October, traders should brace for potential further downside in the near term. The market’s reaction to upcoming economic data and Fed communications will be crucial in determining the path forward.

Technical Analysis

Following a decisive break through a key long-term pivot at 19178.50, the E-mini Nasdaq-100 Index appears to be well on its way to testing the long-term trend indicator or 200-day moving average at 18152.70.

Although a technical bounce can be expected on the initial test of the 200-day MA, a failure to hold it can lead to even more extreme selling pressure.

With the market in a freefall and volatility high, the best thing to do as an investor is to wait for the index to stop going down then buy it on the way back up. However, you have to be patient since the selling is clearly greater than the buying at current price levels.