Stock prices fell Friday morning after investors were spooked by a weak jobs report.
The unemployment rate fell to its lowest level in nearly three years, standing at 4.3 percent in July.
The Nasdaq fell 2.2 percent, entering correction territory. The decline was more than 10 percent from its July 11 record high.
The S&P 500 was poised for its worst session in about two years as recession fears mounted on Wall Street.
The selloff is a blow to Americans with retirement savings in 401(k) plans, which are typically invested in major stock market indexes. It will also affect interest rates, which guide credit card and mortgage rates.
The Nasdaq index fell Friday morning after a disappointing jobs report
401(K) retirement savings
Many workplace 401(K) retirement accounts are invested in major stock market indices.
This means that when stocks fall, the value of those investments is likely to fall as well.
But it’s important not to succumb to the temptation of panic selling during a market downturn, Investopedia.
Instead, measures such as diversifying and moving away from riskier stocks can help protect your savings.
Retirement accounts are designed to be held for the long term. The S&P 500 is up 172 percent over the past decade, despite many short-term fluctuations. NBC News reported.
Interest rates
Wall Street is now increasingly expecting more rate cuts in September, and increasingly an aggressive easing cycle.
Economists at Citigroup and JPMorgan Chase have revised their forecasts for the Fed’s policy after Friday’s weak jobs report.
Investors at Citigroup said they expected a half-percentage point rate cut in September and November and a quarter-percentage point cut in December. Bloomberg reported.
The bank had previously predicted a quarter-percentage point rate cut at all three meetings.
JPMorgan’s Michael Feroli predicted the same rate cuts but went a step further, saying there is a “strong case for action” before the Fed’s next meeting in September.
A rate cut would be good news for consumers, as high interest rates keep borrowing costs high and put pressure on household budgets.
For example, credit card interest rates move in line with the Fed’s benchmark numbers, so that would mean a quick cut and provide some relief to borrowers.
Auto loans, student loans and mortgages are not directly affected by the benchmark rate, but would be affected by it.
Many workplace 401(K) retirement accounts are invested in major stock market indexes and are therefore affected by market fluctuations
The Federal Reserve kept interest rates between 5.25 and 5.5 percent at its last meeting
Mortgage rates
Mortgage rates are not directly affected by the Fed’s benchmark borrowing costs, but rather track the yield on 10-year Treasury bonds.
After the jobs report, these percentages also fell below 4 percent for the first time since February.
However, if interest rates were to fall, this could eventually lead to a slow decline in mortgage rates.
High mortgage rates have caused the housing market to grind to a halt. Sellers are staying put and potential home buyers are being deterred by expensive loans.
A reduction in mortgage rates could revive the housing market.
Dismissed
If a broader economic downturn occurs in the US, it could lead to job losses.
Average hourly wages rose just 3.6 percent in July from a year earlier, according to data released Friday by the Labor Department.
This was the smallest year-on-year increase since May 2021.
Previously, wages had been rising faster than prices for more than a year, increasing workers’ purchasing power.
Consumer spending is the most powerful force in the U.S. economy. Any major decline in purchasing power for the average American could lead to further economic decline.
Shop prices
If Americans were to cut back on spending, prices might fall slightly.
McDonald’s reported this week that sales fell in the latest quarter for the first time since 2020 and that profits fell 12 percent as consumers begin to feel the impact of price increases.
If more consumers start to limit their spending, companies can respond by lowering their prices.