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U.S. stocks erased early session gains on Thursday as investors digested weaker-than-expected labor market data that could help set expectations for both interest rate cut hopes and the health of the U.S. economy.
The S&P 500 (^GSPC) fell as much as 0.6%, while the Dow Jones Industrial Average (^DJI) fell more than 300 points, or about 0.9%. The tech-heavy Nasdaq Composite (^IXIC) erased early morning gains, falling 0.1%. The gauges ended Wednesday’s volatile session on a mixed note, as their slow start to September continued.
US private employers posted their smallest monthly workforce growth since January 2021, new data from ADP showed on Thursday. Private payrolls grew by about 99,000, well below expectations. Meanwhile, slightly fewer Americans filed new claims for unemployment benefits last week. On Wednesday, government data showed that vacancies fell.
Together, the labor market data serves as a preview for Friday’s August jobs report, which is crucial to the Fed’s policy decisions and is closely watched amid hopes for a “Goldilocks” economy.
The market is torn between conflicting impulses as data paints a bleak picture of the economy. Recent soft figures argue for deeper interest rate cuts. But they could also be a sign that the US is on the brink of a recession and that a “soft landing” is no longer in the offing.
Traders see a nearly 50-50 chance that the Federal Reserve will cut rates by 0.5% at its September meeting.
Read more: Fed Predictions for 2024: What Experts Say About the Possibility of a Rate Cut
On the business front, the earnings of HPE (HPE) and C3.ai (AI) shed some light on the prospects for AI growth. Shares of C3.ai fell 11% after the AI software maker for businesses posted weak subscription revenue. HPE shares fell lower on disappointment with profitability.
Meanwhile, Tesla (TSLA) pared earlier gains and rose 3%. The company plans to stick with plans to launch its Full Self-Driving software in China and Europe, pending regulatory approval.
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