The Dow Jones Industrial Average (DJIA) fell nearly 2% on Friday, dropping over 800 points at its lowest point. Markets struggled to stabilize following a disappointing Nonfarm Payrolls (NFP) report showing fewer jobs added in July than anticipated.
The Dow reached a five-week low at 43,330, meeting resistance near the 50-day Exponential Moving Average. The index had its worst week since April, declining over 3% from Monday’s start near 45,000.
Us Nonfarm Payrolls Report
US Nonfarm Payrolls added only 73,000 jobs in July, well below expectations of 110,000. May and June job additions were revised down, removing over 250,000 jobs from recent records, leaving a three-month net increase of 104,000 jobs.
Amid downgraded labour data, markets are increasingly confident of a Federal Reserve rate cut in September. According to CME’s FedWatch Tool, the likelihood of at least a quarter-point cut has risen to over 80% following the report, compared to 45% before the release.
US economic indicators show challenges, with the ISM Manufacturing PMI slipping to 48.0. July saw expanded business caution, with 79% of the manufacturing sector’s GDP output contracting from June’s 46% amid policy uncertainty around tariffs, exacerbated by delays in President Trump’s import tax plans.
Market Volatility And Strategies
Following Friday’s sharp downturn, we see heightened volatility as the immediate trend. With the CBOE Volatility Index (VIX) surging over 18% to close above 19, traders should consider strategies that benefit from price swings, such as long straddles on major indices. This environment suggests uncertainty will dominate the market in the near term.
The market’s reaction has firmly shifted expectations toward a September rate cut, a pivot we can use. We see the probability of a cut now exceeding 80%, which suggests downside risk might be cushioned by the prospect of cheaper money. This makes call options on interest-rate-sensitive sectors for late September expirations look more attractive.
The drop in the ISM Manufacturing PMI to 48.0 confirms a broader economic slowdown, reinforcing the case for Fed intervention. We observed yields on the 2-year Treasury note fall sharply to 3.85% as traders priced in the cut. This bond market signal strengthens our conviction that the path of least resistance for equities could turn upward once the initial shock wears off.
We are viewing this situation through the lens of historical precedents, like the Fed’s policy pivot in 2019. Back then, initial market weakness gave way to a sustained rally once rate cuts began, as monetary easing supported asset prices. While history is not a perfect guide, it suggests we should be prepared for a potential relief rally leading into the September Fed meeting.
