Wall Street falls after employers slash hiring and tariffs roll out
The S&P 500 fell 1.6%, its biggest decline since May 21 and its fourth straight loss. The index also posted a 2.4% loss for the week, marking a sharp shift from last week's record-setting streak of gains.
The Dow Jones Industrial Average fell 1.2%, while the Nasdaq composite fell 2.2%.
Worries on Wall Street about a weakening economy were heavily reinforced by the latest report on job growth in the US, employers added just 73,000 jobs in July.
That is sharply lower than economists expected. The Labor Department also reported that revisions shaved a stunning 258,000 jobs off May and June payrolls.
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Markets also reacted to the latest tariff news. President Donald Trump announced tariff rates on dozens of countries and pushed back the scheduled effective date to August 7, adding more uncertainty to the global trade picture.
"The market has been felled by a one-two punch of additional tariffs, as well as the weaker-than-expected employment data — not only for this month, but for the downward revisions to the prior months," said Sam Stovall, chief investment strategist at CFRA.
Trump's decision to order the immediate firing of the head of the government agency that produces the monthly jobs figures will only fuel the market's uncertainty, Stovall added.
The surprisingly weak hiring numbers led investors to step up their expectations for an interest rate cut in September. The market's odds of a quarter-point cut by the Federal Reserve rose to around 87% from just under 40% a day earlier, according to data from CME FedWatch.
The question now: Will the Fed's policymakers consider a half-point cut next month, or even a quarter-point cut sometime before their next committee meeting, Stovall said.
The yield on the 10-year Treasury fell to 4.21% from 4.39% just before the hiring report was released. That's a big move for the bond market. The yield on the two-year Treasury, which more closely tracks expectations for Fed actions, plunged to 3.68% from 3.94% just prior to the report's release.
The Fed has held rates steady since December. A cut in rates would give the job market and overall economy a boost, but it could also risk fueling inflation, which is hovering stubbornly above the central bank's 2% target.
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An update on Thursday (local time) for the Fed's preferred measure of inflation showed that prices ticked higher in June, rising to 2.6% from 2.4% in May. The Fed has remained cautious about cutting interest rates because of worries that tariffs will add more fuel to inflation and weigh down economic growth.
The central bank, though, also counts "maximum employment" as one of its two mandates along with keeping prices stable. Issues with either of those goals could prompt a shift in policy.
The Fed held rates steady again at its most recent meeting this week. Fed Chair Jerome Powell has been pressured by Trump to cut the benchmark rate, though that decision isn't his to make alone, but belongs to the 12 members of the Federal Open Market Committee.
"What had looked like a Teflon labour market showed some scratches this morning, as tariffs continue to work their way through the economy," said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management.
"A Fed that still appeared hesitant to lower rates may see a clearer path to a September cut, especially if data over the next month confirms the trend."
Businesses, investors and the Fed are all operating under a cloud of uncertainty from Trump's tariff policy. The latest moves give 66 countries, the European Union, Taiwan and the Falkland Islands another seven days, instead of taking effect on Friday, as Trump stated earlier.
Companies have been warning investors that the policy, with some tariffs already in effect while others change or get extended, has made it difficult to make forecasts. Walmart, Procter & Gamble and many others have warned about import taxes raising costs, eating into profits and raising prices for consumers.
ADVERTISEMENT
Internet retail giant Amazon fell 8.3%, despite reporting encouraging profit and sales for its most recent quarter. Technology behemoth Apple fell 2.5% after also beating Wall Street's profit and revenue forecasts.
Both companies face tougher operating conditions because of tariffs, with Apple forecasting a USD$1.1 billion (NZ$1.8 billion) hit from the fees in the current quarter.
Exxon Mobil fell 1.8% after reporting that profit dropped to the lowest level in four years and sales fell as oil prices slumped as OPEC+ ramped up production.
All told, the S&P 500 fell 101.38 points to 6,238.01. The Dow dropped 542.40 points to 43,588.58, and the Nasdaq gave up 472.32 points to finish at 20,650.13.
Stocks fell across the world. Germany's DAX fell 2.7% and France's CAC 40 fell 2.9%. South Korea's Kospi tumbled 3.9%
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The question now: Will the Fed's policymakers consider a half-point cut next month, or even a quarter-point cut sometime before their next committee meeting, Stovall said. The yield on the 10-year Treasury fell to 4.21% from 4.39% just before the hiring report was released. That's a big move for the bond market. The yield on the two-year Treasury, which more closely tracks expectations for Fed actions, plunged to 3.68% from 3.94% just prior to the report's release. The Fed has held rates steady since December. A cut in rates would give the job market and overall economy a boost, but it could also risk fueling inflation, which is hovering stubbornly above the central bank's 2% target. ADVERTISEMENT An update on Thursday (local time) for the Fed's preferred measure of inflation showed that prices ticked higher in June, rising to 2.6% from 2.4% in May. 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At the Budget, Finance Minister Nicola Willis revealed the changes had saved $12.8 billion over the forecast period. 'This is justified' – Brooke van Velden The short timeframe to get the bill passed before the Budget meant there had been 'limited testing and analysis' of the policy proposals, and the retrospective provisions in the bill were 'inconsistent' with general principles. MBIE acknowledged the transitional provisions would likely be 'contentious' but without them it was unlikely the amendments would 'meet the policy objective of ensuring the regime achieves pay equity, whilst better managing claims, and ensuring costs are related to sex-based differences in remuneration.' The legal risks remained redacted, and the bill had no Regulatory Impact Statement. The process was also kept secret to prevent a surge of claims being lodged and potentially determined under the existing Employment Relations Act. The acting Attorney-General, Paul Goldsmith's consideration of the bill concluded that while it imposed limits on the right to freedom from discrimination, the right to justice, and freedom of expression, it was still consistent with the Bill of Rights Act. The paper van Velden took to Cabinet for approval, included in MBIE's document dump, shows she considered any limitations on the rights to be justified. 'I consider that this is justified to meet the policy intent of allowing employers to better manage their operations, reducing potential risks to an employer's financial viability, which may lead to a reduction in employment or the quality or quantity of services provided,' van Velden wrote. Finding the contingencies In December 2023, shortly after assuming the government benches, the finance minister requested more information on how the pay equity forecasts worked and whether there were any upcoming large claims. In February 2024, the Treasury reported back, saying the approach brought in by the previous government had contributed to higher cost outcomes, as it disincentivised agencies and funded sector employers from taking a lower-cost bargaining approach. 'While the current Pay Equity process does require agencies to seek a bargaining contingency prior to the bargaining phase, this occurs late in the process, and many of the potential parameters for settlement are already largely agreed between the parties,' officials said. 'The absence of financial incentives during the pre-bargaining phase may have contributed to agencies adopting approaches which exceed the minimum requirements of the Equal Pay Act, for example, agreeing to higher paid comparators when lower paid ones would be appropriate.' It also meant the Cabinet had 'poor visibility' of the costs, until parties were at or near settlement. Treasury said pay equity costs were managed outside of Budget allowances, and there was merit in exploring an approach that brought some or all of the costs back within Budget allowances. By April 2024, Cabinet had agreed to a reset, bringing pay equity funding into two centralised tagged contingencies: one for the funded sector, the other for the public sector. This still allowed the government to meet its legal obligations as an employer, but was deemed to support the coalition's fiscal strategy. However, by the end of 2024, the government was looking to disestablish the funded sector contingency, identifying it as a significant spending commitment. It expected service providers to manage their own claims, with any cost pressures they created managed like any other cost pressure: through the Budget process. How the money was found Nicola Willis chose to close the funded sector contingency and return the funding to the Budget 2025 allowance and capital allowance. This saved $9.6b over the forecast period. For the public sector contingency, Treasury recommended it be retained, but at a reduced level. 'On balance, we consider retaining the contingency at [redacted] for residual costs to protect future allowances to be preferable given the legal obligations on the Crown as an employer under the new Act and Treasury's judgment that we can quantify the impacts with more than 50 percent confidence,' Treasury wrote. The government adopted this approach, with the tagged public sector contingency reduced by $3.2b over the forecast period. In total, the changes returned around $12.8b to the Budget 2025 operating and capital allowances. Closing or reducing the contingencies without some certainty from Cabinet on policy change, however, was seen to potentially 'strain the credibility' of future Budget allowances. And so, the future approach to pay equity was developed. Van Velden's legislation discontinued 33 claims and increased the threshold for what qualified as work that was 'predominantly performed by female employees.' All review clauses under settled claims became unenforceable.
