Stocks edged lower Friday after a deep selloff on Thursday capped a volatile two days in the market. Investors now await the U.S. jobs report for April.
Futures for the Dow Jones Industrial Average fell 160 points, or 0.5%, after the index tumbled 1,063 points on Thursday to close at 32,997. S&P 500 futures signaled a start 0.5% into the red after a 3.6% slide on Thursday. The tech-heavy Nasdaq was poised to decline 0.6% after losing 5% in the last session—the worst one-day performance since June 2020.
It has been a whipsawing few days in the market. On Wednesday, the S&P 500 and Dow both climbed more than 2% in a spectacular rally, notching their best daily gains since 2020, before it all came crumbling down on Thursday.
Investors have been digesting monetary policy from the Federal Reserve: The central bank met markets’ expectations on Wednesday when it raised interest rates by a sizable half-point, with much more on the table, as it fights historically high inflation. Fed Chair Jerome’s Powell’s message that a mooted 75 basis-point hike was unlikely provided more ammo for Wednesday’s rally.
But it was undone on Thursday as investors continued to worry that the Fed’s moves to raise the cost of borrowing would significantly dent economic demand and cause a recession. Economic concerns out of China, where severe Covid-19 lockdowns threaten a downturn with global ripple effects, didn’t help, either.
“I can’t help but think that a great deal of the reaction yesterday was the appreciation that whilst the Fed can make soothing pronouncements, they are starting from an extraordinary difficult starting point, and with limited flexibility to respond to market or economy concerns whilst they fight inflation,” said Jim Reid, a strategist at Deutsche Bank.
The U.S. jobs report for April—a key economic measure of the health of the labor market—lies in the day ahead. Expectations are for 400,000 jobs to have been added last month, down from 431,000 in March. A number too far ahead of estimates could prompt a negative reaction from the market, indicating that high inflation will stick around and force the Fed to act more aggressively.
“A print north of 500,000 should provoke a faster tightening by the Fed. Possible recession equals selling equities, bonds, gold, cryptos,” said Jeffrey Halley, an analyst at broker Oanda. “Conversely, a print under 300,000 should see a sigh of relief … It’s that sort of market.”