Wall St Week Ahead: Flaring economic worries threaten US stocks rally
Federal Reserve may have left interest rates elevated for too long, allowing them to hurt U.S. growth.
Alarming economic data in recent days have deepened those concerns. U.S. job growth slowed more than expected in July, a Friday report showed, while the unemployment rate increased to 4.3%, heightening fears that a deteriorating labor market could make the economy vulnerable to a recession.
The jobs report exacerbated a selloff in stocks that began on Thursday, when data showing weakness in the labor market and manufacturing sector pushed investors to dump everything from chip stocks to industrials while piling into defensive plays.
Richly valued tech stocks tumbled further on Friday, extending losses in the Nasdaq Composite to more than 10% from a record closing high reached in July. The benchmark S&P 500 index has slid 5.7% from its July peak.
«This is what a growth scare looks like,» said Wasif Latif, president and chief investment officer at Sarmaya Partners. «The market is now realizing that the economy is indeed slowing.»
For months, investors had been heartened by cooling inflation and gradually slowing employment, believing they bolstered the case for the Fed to begin cutting interest rates. That optimism drove big gains in stocks: the S&P 500 remains up 12% this year, despite recent losses; the Nasdaq has gained nearly 12%.
Now that a September rate cut has come into view following a Fed meeting this week, investors are fretting that elevated borrowing costs may already be hurting economic growth.
