After ups and downs and mixed economic messages, Wall Street is retrenching on renewed fears that the US economy is sinking fast and seems likely to enter a recession, analysts say.
The latest US data, including a grim unemployment report on Friday, appear to have settled debate about where the economy is headed, dashing hopes for a quick rebound in the US even as conditions slow in Europe and elsewhere.
“If there was any lingering doubt, yep, it’s a recession, and the fourth quarter is shaping up to be an ugly quarter,” economist Scott Anderson at Wells Fargo Economics said.
“You could almost hear the bulls on Wall Street throwing themselves on their swords over the past five trading days. The payroll report should end the debate that the economy is doing well,” he said.
Dina Cover, economist at TD Bank Financial Group said the “dismal US economic data had a disheartening effect on stock markets.”
“The eight-month string of job losses reaffirms that US consumers have quite a bumpy road ahead, which does not bode well for economic growth in the coming quarters,” she added.
In the holiday-shortened week to Friday, the blue-chip Dow Jones Industrial Average slumped 2.8 percent to end at 11,220.96.
The broad-market Standard & Poor’s 500 index lost 3.16 percent to 1,242.31 and the technology-heavy NASDAQ composite retreated 4.2 percent to 2,255.88.
The US unemployment rate spiked to a five-year high of 6.1 percent last month with 84,000 jobs lost. Auto sales were down sharply from last year’s levels, raising fears about consumer spending and the factory sector.
The reports dampened hopes for a recovery that had been fueled by data showing a robust 3.3 percent growth rate in US gross domestic product in the second quarter — a report that some said was distorted by one-time factors.
The latest data on the labor market “confirms that the improvement in GDP growth to 3.3 percent in the second quarter was just a head-fake,” said Nigel Gault, economist at Global Insight.
For the US Federal Reserve, which has held rates steady at 2 percent while hinting at a rate increase, the payrolls report “confirms that the notion of a rate hike to combat inflation is fanciful — the question now is rather whether the Fed might need to cut again,” Gault said.
The coming week holds some promise, at least in terms of economic data that may be easier to swallow, he said.
Thursday’s report on inflation at the wholesale level is likely to show a decline, reflecting the sharp retreat in energy costs, according to Global Insight economists. This may ease pressure on the Federal Reserve, allowing the central bank to keep interest rates low to stimulate a recovery.
Bond prices rallied as investors looked for a safe haven. The yield on the 10-year Treasury bond fell to 3.660 percent from 3.813 percent a week earlier, while that on the 30-year bond eased to 4.276 percent against 4.412 percent. Bond yields and prices move in opposite directions.