U.S. Stocks Stage Significant Recovery Attempt But Still Close Lower

After extending yesterday’s sell-off early in the session, stocks staged a significant recovery attempt over the course of the trading day on Friday. The major averages climbed well off their worst levels of the day but still finished the session in negative territory.

The Dow was down by more than 600 points at its worst levels but briefly turned positive before ending the day down 159.42 points or 0.6 percent to 28,133.31. The Nasdaq slumped 144.97 points or 1.3 percent to 11,313.13 and the S&P 500 slid 28.10 points or 0.8 percent to 3,426.96.

Primarily reflecting the sell-off seen on Thursday, the major averages all closed sharply lower for the week. The Nasdaq plunged by 3.3 percent, while the S&P 500 and the Dow tumbled by 2.3 percent and 1.8 percent, respectively.

Technology stocks contributed to the early sell-off on Wall Street once again, as traders continued to cash in on the recent strength in the sector.

At its lows of the session, the tech-heavy Nasdaq was down nearly 10 percent from the record intraday high set on Wednesday.

Analysts often predict a 10 percent correction by the markets following a prolonged upward trend, although it typically takes longer than two days.

Selling pressure subsequently waned over the course of the session, with shares of Apple (AAPL) showing a significant turnaround.

After plummeting by as much as 8.3 percent in early trading, Apple eventually ended the session just above the unchanged line

Big-name tech stocks like Microsoft (MSFT), Netflix (NFLX), and Amazon (AMZN) also climbed well off their worst levels but still ended the day in the red.

On the economic front, the Labor Department released a report showing another substantial increase in U.S. employment in the month of August, although the pace of job growth continued to slow from the record spike seen in June.

The Labor Department said non-farm payroll employment surged up by 1.371 million jobs in August after spiking by a downwardly revised 1.734 million jobs in July and soaring by 4.781 million jobs in June.

Economists had expected employment to jump by about 1.400 million jobs compared to the addition of 1.763 million jobs originally reported for the previous month.

The strong job growth in August was partly due to the hiring of 238,000 temporary 2020 Census workers, which contributed to a significant increase in government employment.

“Census hiring could rise further in September but, as in previous Census years, those workers will be let go again over the following months,” said Andrew Hunter, Senior U.S. Economist at Capital Economics. “Nevertheless, there were also solid increases in employment across most of the private sector.”

The continued job growth contributed to a much bigger than expected drop in the unemployment rate, which fell to 8.4 percent in August from 10.2 percent in July. Economists had expected the unemployment rate to edge down to 9.8 percent.

The unemployment rate continued to decline from the post-World War II record high of 13.5 percent in April but remains well above the 50-year low of 3.5 percent seen late last year.

Sector News

Despite the recovery attempt by the broader markets, substantial weakness remained visible among software stocks. The Dow Jones U.S. Software Index slumped by 2.2 percent, pulling back further off the record closing high set on Thursday.

DocuSign (DOCU) posted a steep loss even though the e-signature software company reported better than expected fiscal second quarter results and raised its full-year guidance.

Retail stocks also showed a significant move to the downside on the day, dragging the Dow Jones U.S. Retail Index down by 1.7 percent. The index also pulled back further off Thursday’s record closing high.

Housing, telecom, and gold stocks also ended the day firmly in negative territory, contributing to the lower close by the broader markets.

On the other hand, banking stocks moved sharply higher over the course of the session, driving the KBW Bank Index up by 2.2 percent.

Considerable strength also emerged among airline and steel stocks, with the NYSE Arca Airline Index and the NYSE Arca Steel Index climbing by 1.5 percent and 1.2 percent, respectively.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved notably lower during trading on Friday. Japan’s Nikkei 225 Index slumped by 1.1 percent, while China’s Shanghai Composite Index slid by 0.9 percent.

The major European markets also moved to the downside over the course of the session. While the German DAX Index tumbled by 1.7 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index both slumped by 0.9 percent.

In the bond market, treasuries pulled back sharply after trending higher over the past several sessions. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 9.9 basis points to 0.721 percent.

Looking Ahead

Following the Labor Day holiday on Monday, the economic calendar for next week remains relatively quiet. Reports on consumer and producer price prices may attract some attention, although the Federal Reserve has recently indicated it is no longer concerned about inflation.

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