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Market Snapshot: Dow tumbles 475 points after strong jobs report cuts into weekly stock-market gains

U.S. stocks fell sharply Friday, cutting into weekly gains, after September jobs data showed an unexpected fall in the unemployment rate that’s anticipated to reinforce the Federal Reserve’s resolve to keep tightening monetary policy.

Investors also weighing a profit warning at a leading microchip maker.

What’s happening

The Dow Jones Industrial Average
DJIA,
-1.96%

fell 475 points, or 1.6%, to 29,451.

The S&P 500
SPX,
-2.60%

dropped 83 points, or 2.2%, to 3,663.

The Nasdaq Composite
COMP,
-3.59%

shed 341 points, or 3.1%, to 10,731.

Stocks were on track for back-to-back losses, trimming weekly gains.

Read: Will the stock market be open on Columbus Day?

What’s driving markets

Stocks slumped after the Labor Department said the U.S. economy added 263,000 jobs in September, while the unemployment rate declined to 3.5% from an August reading of 3.7%. Average hourly earnings rose 0.3%.

“It’s a reflection that people have re-entered the mindset that the Fed is going to be raising rates at a rapid clip, probably for longer than what they might have suspected at the start of the week,” said Robert Pavlik, a senior portfolio manager at Dakota Wealth Management, by phone.

Pavlik expects the Fed to keep tightening financial conditions to try to head off inflation. “But once we turn the corner, and the economy slows down, the Fed probably will be more aggressive in cutting rates on the way down.”

The data underlined the labor market’s role in the inflation battle, said Steve Rick, chief economist at CUNA Mutual Group, in a note.

“If unemployment remains low, employers will increase wages to attract talent, creating more disposable income. Increased purchasing power will then lead to increased demand for goods and services, spiking prices and potentially causing the Fed to raise rates even more.”

In addition, the Fed has been “draining liquidity from the system at a remarkable pace,” wrote Rick Rieder, BlackRock’s chief investment officer of global fixed income, in a Friday client note, while pointing to an astounding $1.3 trillion decline in the central bank’s balance sheet since the December 2021 peak.

Pavlik at Dakota Wealth said he anticipates the Fed will start slowing rate hikes by mid-next year, which likely means continued pressure for the stock market, particularly with a backdrop of big oil-price
CL00,
+4.59%

gains this week after global crude producers voted to cut monthly production and with the U.S. dollar’s
DXY,
+0.26%

surge this year against a basket of rival currencies.

New York Fed President John Williams said Friday that benchmark interest rates likely need to hit 4.5% over time. The Fed’s policy rate now sits in a 3%-3.25% range, but up from a zero-0.25% range a year ago.

Federal Reserve Gov. Christopher Waller late on Thursday said he didn’t expect the jobs report to change anyone’s thinking at the central bank.

Companies in focus

Twitter Inc.
TWTR,
-1.03%

shares were again in focus Friday after a judge delayed a looming trial between the company and Elon Musk to allow the Tesla Inc.
TSLA,
-6.42%

CEO more time to close his $44 billion acquisition of the social media platform.

Besides the jobs report, investors weighed a profit warning from microchip maker Advanced Micro Devices Inc. AMD, which said the PC market weakened significantly during the quarter. AMD shares fell 8%, and rivals including Nvidia Corp. NVDA and Intel Corp. INTC were also lower.

—Steven Goldstein contributed reporting to this article

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