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Dow erases 370-point gain to trade lower, on track for third straight weekly loss

Stocks fell on Friday and headed for their third consecutive weekly decline as a strong August jobs report did not allay fears that the Federal Reserve will continue to aggressively raise interest rates to combat inflation, tipping the economy into a recession.

The Dow Jones Industrial Average erased a 370 point gain and turned red in afternoon trading. He was the last lower by 243 points, or 0.8%. The S&P 500 fell 0.9%. The Nasdaq Composite fell 1.2% and is set to close for the sixth straight day.

Major averages are expected to end the week lower and record their third straight negative weeks after crashing in the final days of August. The Dow and S&P are heading for declines of 2.2% and 2.6%, respectively, while the Nasdaq is on track to end the week down 3.6%.

“There’s still a lot of nervousness around what we’ll see over the next few months,” said Callie Cox, US investment analyst at eToro. “Yes, inflation and the labor market are returning to equilibrium, but at what cost? The markets are still figuring this out.”

“To make matters worse, the S&P 500 is trapped in the danger zone – below its three major moving averages,” she added. “These moving averages served as lows until a few weeks ago. Now they appear to be highs that the index simply cannot break through. The mood has definitely changed. Although we can no longer test lows of this sale, we may not be hitting new heights anytime soon.”

Stocks have been weighed down throughout this week by hawkish comments from Federal Reserve officials signaling that interest rate hikes aren’t going away any time soon. This put traders on watch for a retest of the June lows, especially since September has historically been a poor month for the market. Some have suggested that if the S&P 500 fails to hold the 3,900 level, those summer lows could come back into play.

Some investors were briefly comforted on Friday by the much-anticipated jobs report, which showed the economy added 315,000 jobs for the month, just below the Dow Jones estimate of 318,000. Temporarily allay fears that a warmer labor market would give the Federal Reserve leeway to become more aggressive with its rate hikes. Stocks rallied in the first part of the day.

The unemployment rate reached 3.7%, two tenths of a percentage point higher than expected. The August report is particularly important because it is one of the last major economic reports the Fed will assess before raising rates at its September meeting. This data point could help the central bank determine whether a 75 basis point hike.

The last major economic report of note is the August CPI from September 13 and is more likely to determine how aggressive the Fed needs to be in the near term.