Stocks fell after fresh economic signals raised concerns about U.S. growth prospects.
The Labor Department released data Thursday showing that initial jobless claims rose to 249,000 last week, beating analysts’ forecasts and reaching the highest level since August 2023. While layoffs across the country remain modest, some investors worry that the recent surge in jobless claims could be a prelude to a sharper decline in wages later this year.
New data from purchasing managers also shows manufacturers are weakening due to rising interest rates, while a growing number of companies reporting results point to a decline in consumer spending.
“The economy is in pretty good shape in 2024, but it has some weak spots,” Comerica Bank chief economist Bill Adams said in an email. “High interest rates are a major headwind for credit-intensive industries like manufacturing, real estate development and big-ticket retail like furniture and cars.”
An hour before the close, the S&P 500 was down 104 points, or 1.9%, at 5,419, while the Dow Jones Industrial Average was down about 700 points, or 1.6%, at 40,158. The tech-heavy Nasdaq Composite fell even more sharply, dropping nearly 3%.
Financial markets have been steadily rising this year, buoyed by enthusiasm for artificial intelligence companies and expectations that the Federal Reserve will soon cut its benchmark interest rate amid slowing inflation. But some Wall Street analysts and economists worry that the Fed is behind schedule in cutting borrowing costs, raising the risk of a hard landing for the economy.
The Fed chose this week to keep rates stableFed Chairman Jerome Powell simply said the time to ease monetary policy was “coming soon.” Most forecasters expect the central bank to announce its first rate cut in four years at its September 17-18 policy meeting.
The unease on Wall Street is compounded by growing fears of a spiral of hostility in the Middle East. World Oil Prices rose slightly this week after the Hamas assassination Political leader Ismail Haniyehwhich has raised concerns about possible retaliation by Iran or its proxies.
“The economy and the consumer in general are under stress, and we simply don’t have a lot of room to respond appropriately if geopolitical or other unexpected risks materialize,” said Jeff Klingelhofer, portfolio manager at Thornburg Investment Management.
Despite investor caution of late, data shows the economy remains strong. Gross domestic product (GDP) – the total output of goods and services – grew at an annual rate of 2.8% between April and June, beating the first quarter’s growth rate of 1.4% and analysts’ forecasts.
Another key indicator of the nation’s economic health will be released Friday, when the Labor Department releases July employment figures. Economists predict that employers added about 175,000 jobs last month, with the unemployment rate expected to hover around 4.1%.
—The Associated Press contributed to this report
