Nasdaq falls 2%, S&P drops as mixed jobs report keeps debate over rate-cut size alive

U.S. stocks on Friday dropped sharply, and Treasury yields fell in volatile trade following a mixed August jobs report that left questions open about the size of the Federal Reserve’s anticipated interest rate cut this month.

Stock futures pared losses before the opening bell after the nonfarm payrolls data came in. Meanwhile, Treasury yields moved lower in an immediate reaction as investors snapped up bonds. The three major equity averages opened higher, then later slid to session lows.

The tech-heavy Nasdaq Composite (COMP:IND) -2.1%, on course for its worst drop since Tuesday, when it fell 3.3%. The benchmark S&P 500 (SP500) was -1.5%. The blue-chip Dow (DJI) was -0.9%.

The 10-year Treasury yield (US10Y) dropped 6 basis points to 3.67%. The 2-year yield (US2Y) fell 11 basis points to 3.64%.

August U.S. nonfarm payrolls came in at +142K vs. +160K consensus and +89K in July (revised from +114K). The unemployment rate was 4.2% vs. 4.2% consensus and 4.3% in July. Odds over whether the Federal Open Market Committee will bring in a super-sized interest rate decrease of 50 basis points later this month or a smaller 25 basis point cut fluctuated.

“An especially strong or weak employment report could have crystallized the 25 or 50 bps rate cut debate for the FOMC’s upcoming meeting. Instead, today’s data have offered something for both the hawks and the doves on the FOMC,” Wells Fargo Senior Economists Sarah House and Michael Pugliese.

U.S. stock averages closed mixed Thursday, with only Nasdaq closing higher, aided by Nvidia (NVDA). But Nvidia (NVDA) was dragged -4% on Friday alongside other tech stocks as investors weigh valuations against signs of a slowing U.S. economy.

September is continuing to live up to its reputation as the weakest month for the S&P 500 index, Deutsche Bank’s Henry Allen said.

Broadcom (AVGO) shares fell 9.8% on Friday, after the semiconductor and software giant offered a weaker-than-expected forecast for the fourth quarter.

The July jobs report ignited a market selloff on concerns the economy was heading to a recession.

Just one month ago, markets were panicked by the release of an unreliable labor market signal, distorted by seasonal peculiarities, said UBS’s Paul Donovan.