The Dow Jones Industrial Average (DJIA) dropped nearly 2% on Friday, falling more than 800 points at its lowest point. The market struggled to recover after a disappointing Nonfarm Payrolls (NFP) report showed fewer jobs were added in July than expected. The Dow hit a five-week low of 43,330 and encountered resistance around the 50-day Exponential Moving Average. Overall, the index suffered its worst week since April, falling over 3% from Monday’s opening near 45,000.

US Nonfarm Payrolls Report

In July, US Nonfarm Payrolls added just 73,000 jobs, far below the expected 110,000. The job additions for May and June were revised down, removing over 250,000 jobs from earlier numbers, leaving a three-month total of just 104,000 new jobs. With this disappointing labor data, the market now sees a strong chance of a Federal Reserve rate cut in September. According to the CME’s FedWatch Tool, the likelihood of at least a quarter-point cut has jumped to over 80% following the report, up from 45% before. US economic indicators show ongoing challenges, with the ISM Manufacturing PMI dropping to 48.0. In July, 79% of the manufacturing sector’s GDP saw contraction, a significant increase from June’s 46%, partly due to uncertainties about tariffs and delays in President Trump’s import tax plans.

Market Volatility And Strategies

After Friday’s significant drop, market volatility has increased. The CBOE Volatility Index (VIX) jumped over 18%, closing above 19. Traders may want to consider strategies that benefit from price swings, such as long straddles on major indices. This environment suggests uncertainty will be a major theme in the market for now. Market reactions have shifted expectations firmly toward a rate cut in September. With the probability now exceeding 80%, downside risks could potentially be softened by the likelihood of cheaper money. This makes call options on interest-rate-sensitive sectors with late September expirations more appealing. The decline in the ISM Manufacturing PMI to 48.0 confirms a wider economic slowdown, highlighting the need for Fed intervention. We see yields on the 2-year Treasury note plummet to 3.85% as traders adjust for the anticipated rate cut. This bond market response reinforces our belief that, once the initial shock passes, equities could trend upward. We’re looking at this situation with the perspective of past events, like the Fed’s policy change in 2019. Back then, early market weakness led to a strong rally after rate cuts began, as monetary easing supported asset prices. While history isn’t a perfect predictor, it suggests we should be ready for a possible rally leading up to the September Fed meeting. Create your live VT Markets account and start trading now.

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