Why Weak Labor Data Led to a 4.7% Drop in Nasdaq This Week

The stock market took a significant hit after this week's labor data revealed unexpected weaknesses in the economy. The July jobs report, a critical indicator for predicting recessions, showed lower-than-anticipated figures, sparking concern among investors.

In the first two days of August, the S&P 500 (^GSPC) dropped by 3.2%, and the Nasdaq Composite (^IXIC) fell by 4.7%. This decline continues a downward trend for the Nasdaq, which has now entered correction territory after losing over 10% since reaching its peak in mid-July.

Investors Brace for Economic Slowdown Amid Disappointing Data

"Markets seem to be treating bad news as bad news again, not a positive catalyst given an easy Fed outlook," noted Scott Chronert, Citi's head of US equity strategy, in a recent client note.

Investors are increasingly concerned about a potential recession, prompting them to revisit their strategies for economic slowdowns. This sentiment was triggered by Thursday's disappointing data: US manufacturing activity hit its lowest point since November 2023, and weekly unemployment claims reached their highest level in nearly a year.

The situation worsened on Friday with an employment report showing the second-weakest monthly job growth since 2020 and the highest unemployment rate in almost three years, further fueling market sell-offs.