U.S. stock markets experienced another severe sell-off. Influenced by unexpectedly weak U.S. employment data and a sharp surge in international oil prices, stocks fell sharply across the board overnight. The Dow Jones Industrial Average plummeted by over 900 points intraday, while the Nasdaq Composite Index tumbled late in the session, closing down 1.59%. Major technology stocks suffered heavy losses, with NVIDIA dropping more than 3%.
On the news front, the U.S. Bureau of Labor Statistics (BLS) released the February non-farm payrolls report on Friday, which revealed a net loss of 92,000 jobs for the month. This figure was significantly below expectations and marked only the second instance of negative monthly growth since 2020. The unemployment rate also climbed to 4.4%. Analysts pointed out that the severe hit to the U.S. job market in February has sparked widespread concerns about the economic outlook.
Simultaneously, escalating tensions in the Middle East have heightened risks of a resurgence in U.S. inflation. International crude oil prices closed significantly higher on Friday. The April WTI crude oil futures contract surged 12.21%, bringing its weekly gain to 35.6%. The May Brent crude futures contract rose 8.52%, accumulating a 27.88% increase for the week. JPMorgan Chase noted that a combination of Middle East conflicts driving up oil prices, renewed tariff uncertainties, and the complex narrative surrounding the job market presents the Federal Reserve with a challenging mix of stagflation risks.
On March 6, Eastern Time, all three major U.S. stock indices closed deeply in the red. The Dow fell 0.95%, the Nasdaq dropped 1.59%, and the S&P 500 declined 1.33%. Major tech stocks were broadly lower: Intel fell over 5%, NVIDIA dropped 3%, while Amazon, Tesla, and Meta each declined more than 2%. Apple slipped over 1%, and Microsoft and Google registered minor losses.
Asset management firms and bank stocks also fell sharply, impacted by a series of negative private credit events. BlackRock dropped over 7%, and Ares Management fell 6%. In contrast, most popular Chinese concept stocks advanced. The Nasdaq Golden Dragon China Index closed up 0.69%. JD.com and XPeng Motors each jumped over 6%, Trip.com and NetEase rose more than 3%, Pinduoduo and Kingsoft Cloud Holdings gained over 1%, and Alibaba edged up 0.35%.
Analysts indicated that soaring international oil prices due to Middle East tensions, combined with employment data that fell far short of expectations, intensified market worries. The CBOE Volatility Index (VIX), often called Wall Street's "fear gauge," surged 22% to its highest level since last April, a period marked by market turbulence due to tariff uncertainties.
Bob McNally, President of Rapidan Energy Group, commented, "Investor sentiment has rapidly shifted from complacency to near-panic, and the market could be approaching a genuine panic moment." Jeff Palma, Head of Multi-Asset and Macro Research at Cohen & Steers, stated, "On one hand, there's economic weakness; on the other, soaring oil prices. This combination of data is very difficult for the market to digest." Ellen Zentner, Chief Investment Strategist at Morgan Stanley Wealth Management, noted in a report that the confluence of Middle East conflicts boosting oil prices, resurgent tariff uncertainty, and the complicated job market story presents the Fed with a tricky stagflation risk combination.
The U.S. non-farm payrolls data, released on the evening of March 6 Beijing Time, showed a net loss of 92,000 jobs in February. This was significantly worse than the market expectation of a 55,000 gain and even 83,000 below the most pessimistic forecast, representing a deviation of about six standard deviations. This marks only the second month of negative growth since 2020, following the -140,000 reading last October. Concurrently, the unemployment rate unexpectedly rose to 4.4% from 4.3% in January, exceeding the forecast of 4.3%.
The unexpected deterioration in employment data has shaken market confidence in a soft landing for the U.S. economy. Against a backdrop of rising imported costs due to tightening geopolitical tensions, the dual pressures from the job market and inflation have drawn investor attention to U.S. stagflation risks. Following the jobs report, traders slightly increased bets on the Fed implementing at least one interest rate cut by 2026.
According to the CME FedWatch Tool, the probability of a 25-basis-point rate cut by the March meeting was 4.5% (compared to 4.7% before the report), with a 95.5% chance of rates remaining unchanged (95.3% before). The probability of a cumulative 25-bps cut by April rose to 17.7% (from 14%), with an 81.7% chance of no change (85.5% before). The likelihood of a cumulative 25-bps cut by June increased to 40% (from 31.5%).
However, some analysts warned that against the backdrop of escalating Middle East tensions, concerns about U.S. economic stagflation are intensifying, potentially leaving the Fed in a dilemma. Nick Timiraos, Chief Economics Correspondent for The Wall Street Journal, noted that this report brings the Fed "a step closer" to its most feared scenario—rising inflation coinciding with declining employment.
Sonu Varghese of Carson Group wrote that the negative job growth in February is unlikely to alter the Fed's rate cut outlook for this year. The report serves as a reminder that "risks in the U.S. labor market have not disappeared." On the other hand, "inflation was already high before the impending energy price shock and AI-related bottlenecks emerged." Varghese expects the combination of these factors to tie the Fed's hands regarding rate cuts—making near-term reductions unlikely.
Judging from recent comments by Fed officials, significant internal divisions persist. On March 6, local time, Fed Governor Christopher Waller stated that conflict in the Middle East would not have a lasting impact on U.S. inflation and reiterated his preference for a 25-basis-point rate cut. In a media interview, he indicated that while rising oil prices might cause a price shock for consumers, policymakers would not adjust their stance based on one-off energy price fluctuations. He emphasized that core inflation, which excludes food and energy, is a more reliable indicator for forecasting future inflation trends. Waller explicitly stated, "Oil price increases triggered by the Iran conflict are a one-off disturbance, insufficient to sway the Fed's policy judgment. From a forward-looking policy perspective, this is unlikely to cause persistent inflation." Previously, Waller dissented at the Fed's January policy meeting, advocating for a 25-bps cut, citing ongoing signs of labor market weakness.
Regarding the latest February jobs report, San Francisco Fed President Mary Daly told CNBC that it deepened her concerns about the labor market. However, she believes this does not warrant an immediate Fed rate cut, as persistently high inflation combined with rising oil prices due to the Iran conflict presents a "two-sided risk." She stated that the disappointing February employment report weakens the argument that the U.S. labor market is stabilizing. Daly added, "I think we can't ignore this report, but it's just one month's data and shouldn't be overinterpreted." She also noted that a job market characterized by low hiring and low firing is susceptible to change, and both of the Fed's dual mandates—maximum employment and price stability—are now at risk. She pointed out that inflation has been above the Fed's 2% target for five consecutive years. The impact of rising oil prices depends on how long the increase lasts, and currently observed wage growth is not excessively high.
Additionally, both Boston Fed President Susan Collins and Cleveland Fed President Beth Hammack indicated that they still believe interest rates should remain at their current levels "for some time."
Comments