U.S Stocks Plunge as Traders Brace for Friday's Jobs Report

On Thursday, U.S. stocks experienced a rapid decline, erasing most of the gains the S&P 500 had achieved in its strongest session in three weeks the previous day. This volatility was driven by fluctuating Treasury yields, causing anxiety among investors in anticipation of the monthly jobs report from the Labor Department scheduled for Friday.

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Here's the market breakdown:

• The S&P 500 (SPX) declined by 30 points, equivalent to 0.7%, closing at 4,233.
• The Dow Jones Industrial Average (DJIA) dropped by 111 points, or 0.4%, closing at 33,011.
• The Nasdaq Composite (COMP) saw a decline of 138 points, or 1%, closing at 13,098.

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On Wednesday, the Dow Jones Industrial Average had risen by 127 points, ending a three-day losing streak, while the S&P 500 had gained 34 points, marking its most significant percentage gain in three weeks.

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Market drivers included the volatile movements in Treasury yields during early trading on Thursday, putting additional pressure on U.S. stocks. Investors were digesting fresh economic data in anticipation of the crucial September jobs report to be released on Friday.

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The 10-year Treasury note's yield, which reached a 16-year high earlier in the week, was last recorded at 4.73%. It's important to note that bond yields move inversely to bond prices.

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Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, mentioned that the momentum in the market appeared to be leaning towards the downside without any specific catalyst evident on the day.

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A weekly report on jobless claims indicated no signs of increasing layoffs, which are typically a prerequisite for the Federal Reserve to consider easing its monetary policy. This has been a factor weighing on both stocks and bonds since early 2022. Government data revealed a slight increase in the number of Americans applying for unemployment benefits last week, reaching 207,000 but still remaining near pandemic-era lows.

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Additionally, data on the U.S. international trade deficit suggested some weakness in consumer spending, although analysts primarily attributed the impact on yields and stocks to the jobless claims figures.

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The recent rise in Treasury yields, particularly on the longer end of the yield curve, has been widely held responsible for the stock market selloff that began in early August. However, as stocks continued to decline on Thursday without a clear catalyst, equity strategists suggested that investors might be following the latest trend.

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Bill Adams, Chief Economist for Comerica Bank, explained that financial markets had been unsettled in recent days due to the increase in long Treasury yields. While there are various explanations for this surge, including increased Treasury issuance and the Fed's reduced bond-buying, the implications can differ. Rising interest rates could signal that the deficit is crowding out private-sector access to capital. Nevertheless, Treasury yields also rose in August despite a government surplus that month. Ultimately, the increase in long-term Treasury yields could lead the Fed to consider raising short-term interest rates earlier than expected.

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Several senior Fed officials were scheduled to speak on Thursday, including Cleveland Fed President Loretta Mester, San Francisco Fed President Mary Daly, and Richmond Fed President Thomas Barkin.

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Amid the recent turbulent trading, the Cboe VIX index, which measures expected equity-market volatility, reached 20 for the first time in four months as stocks saw a decline. While some analysts anticipate a near-term rebound, many emphasize that the direction of bond yields remains a crucial factor for the stock market.

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Looking ahead to Friday, economists polled by The Wall Street Journal anticipate the creation of 170,000 jobs in September, which would be a decrease from the 187,000 jobs added the previous month.

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