S&P 500, Dow and Nasdaq cut jobs and post gains as energy crisis heats up

Stocks gave up an early rally and finished lower on Wall Street, marking their third consecutive losing week.

The indices had opened higher following a labor market report that showed a moderate slowdown in hiring. This fueled cautious optimism that the Federal Reserve might not need to be so aggressive with high interest rates in its fight against inflation.

But the market fell in the afternoon after Russian energy giant Gazprom said it would not reopen a gas pipeline to Germany just yet, a bad sign for the ongoing struggle of the Europe with higher energy prices.

The S&P 500 fell 42.59 points, or 1.1%, to 3,924.26, the Dow Jones Industrial Average lost 337.98 points, or 1.1%, to 31,318.44, and the Nasdaq fell 154.26 points, or 1.3%, to 11,630.86. The 10-year Treasury yield closed softly at 3.195%.

U.S. stock markets are closed Monday for the Labor Day holiday.

The jobs report gives little information on the size of the Fed’s next rate hike

Employers slowed hiring in August, adding 315,000 jobs, down from 526,000 in July and below the average gain of the previous three months. The jobless rate also rose to 3.7% from 3.5% in July. Average hourly earnings jumped 5.2% last month from a year earlier, but slowed slightly from July to August. This is a welcome sign in the fight against inflation, as companies generally pass the cost of higher wages onto their customers through higher prices.

Initially, the slowdown put traders in a buying mood, fueling cautious optimism that the Federal Reserve may not need to hike interest rates as aggressively in its continued bid to controlling inflation.

Almost everyone expects the Fed to hike rates again later this month, but whether the hike will be half a point or three-quarters of a point remains debatable.

Some economists have said there may be enough signs in the jobs report that the economy is gradually slowing for the Fed to ease off and implement a half-point increase instead of an increase of 75 basis points as it has done in the last two meetings.

Other economists said the report still showed a strong labor market, which the Fed needs to weaken before inflation can come down significantly and pause.

“The Fed still has some work to do if it wants to ease price pressures,” said Oren Klachkin, chief economist at Oxford Economics. “Job creation is strong, wage inflation remains above 5% and the labor market remains very tight. Given Fed Chairman Powell’s hawkish rhetoric in Jackson Hole last week and the fact that the upcoming CPI (consumer price index) report is expected to show further pressure on core prices. , we continue to expect a rate hike of 75 basis points in September.”

All eyes are on the consumer price index

The next CPI report is due September 13. If that shows a significant slowdown, that could settle the debate over whether the September Fed meeting will lead to a half- or three-quarter-point rate hike.

July’s annual CPI rose 8.5%, which was still high but at least lower than the blistering pace of 9.1% in June. Fed Chairman Jerome Powell said last week that was an encouraging sign, but repeated that a month was not a trend and that the Fed was still far from its 2% inflation target. .

Why the Fed is raising rates:Why is the Fed raising interest rates? And how do these hikes slow down inflation?

Sticky wages:$15 an hour is not enough. Job seekers want at least $20, making it harder to fight inflation

The energy crisis is getting worse

Friday afternoon’s market reversal came after Russian energy giant Gazprom said the shutdown of natural gas supplies through the Nord Stream 1 pipeline to Germany could be extended. The company cited the need for urgent maintenance work on the pipeline.

On Wednesday Gazprom completely halted the flow of gas through the pipeline and said the shutdown would last three days.

Capped rates:G-7 Countries Approach Russian Oil Price Peak; US official says group watching Putin’s cash flow

Fundamental values:The magnitude of the Fed’s next rate hike could be based on soaring ‘core’ costs, not energy prices

Separately, the rich countries of the Group of Seven which include the United States and the United Kingdom. Germany, France, Italy, Canada and Japan have agreed to cap the price of Russian oil on world markets. And the Organization of the Petroleum Exporting Countries is meeting on September 5 to discuss production plans.

Oil prices closed higher on Friday.

Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at [email protected] and sign up for our free Daily Money newsletter for personal finance tips and business news Monday through Friday mornings.