• The Dow fell around 600 points on Friday, extending its weekly loss to over 1K points amid a toxic mix of labor market weakness and surging Oil prices.
• Nonfarm Payrolls came in at -92K for February, massively undershooting the +59K consensus and marking the third negative print in five months.
• The Unemployment Rate ticked up to 4.4% while Average Hourly Earnings ran hot at 0.4% MoM, painting a stagflationary picture.
• Rate cut expectations shifted forward, with traders now pricing the next Federal Reserve cut for July and increasing odds of two cuts before year-end.

The Dow Jones Industrial Average was down around 600 points, or 1.26%, near 47,340 on Friday at the time of writing, capping off a brutal week that saw the blue-chip index shed over 1K points. The S&P 500 traded near 6,750, down around 1.1%, while the Nasdaq Composite hovered near 22,550, off roughly 0.9%. The session's damage was driven by a combination of a historically bad jobs report and escalating Oil prices tied to the US-Iran conflict, with WTI crude breaking above $89 and Brent topping $91.

Payrolls plunge catches Wall Street off guard

February's Nonfarm Payrolls (NFP) print of -92K was a gut punch. The consensus had expected a modest 59K gain after January's downwardly revised 126K, making the miss one of the widest in recent memory — a deviation of more than three standard errors from expectations. To make matters worse, December's figure was revised sharply lower, from 48K down to -17K, meaning the economy actually lost jobs in two of the last three months. The Bureau of Labor Statistics (BLS) attributed much of the February decline to a 28K drop in healthcare employment, largely driven by the Kaiser Permanente strike in California and Hawaii that sidelined over 30K workers. Federal government payrolls continued to shrink, down another 10K, extending a trend that has now seen 330K federal jobs disappear since October 2024. Construction shed 11K after a strong January, manufacturing lost 12K, and transportation and warehousing dropped 11K. Long-term unemployment also rose, with the average duration hitting 25.7 weeks — the longest since December 2021.

Unemployment rate rises, wages stay sticky

The Unemployment Rate edged up to 4.4% from 4.3%, above the consensus expectation of no change. Labor Force Participation also slipped to 62% from 62.1%, suggesting some workers are dropping out of the workforce entirely rather than finding new roles. On the wage side, Average Hourly Earnings came in hotter than expected at 0.4% month-over-month and 3.8% year-over-year, both a tenth above forecast. That's the wrong combination for the Federal Reserve (Fed) — a weakening labor market paired with sticky wage growth feeds directly into the stagflation narrative that has been building since Oil prices started spiking earlier this week. Fed Governor Christopher Waller, speaking earlier Friday morning in what FXStreet Speech Tracker rated as a hawkish 6.6 appearance, had notably left the door open for a rate move depending on the data. Waller has been one of the more dovish voices on the Federal Open Market Committee (FOMC), so his willingness to entertain action underscores how fluid the policy picture has become.

Retail sales offer little relief

January Retail Sales data, also released Friday, did little to improve the mood. The headline came in at -0.2% month-over-month, slightly better than the -0.3% consensus but still a negative read that points to a consumer pulling back after the holiday season. Retail Sales ex-Autos were flat at 0.0%, while the Control Group — which feeds into Gross Domestic Product (GDP) calculations — managed a 0.3% gain, offering a faint silver lining. Taken together with the payrolls data though, the consumer picture is softening. Fewer people working, lower participation, and declining retail activity don't paint a picture of an economy that can sustain elevated interest rates much longer.

Rate expectations shift but Oil complicates everything

Following the NFP release, traders pulled forward expectations for the next Fed rate cut to July and increased the probability of two cuts before year-end, according to CME FedWatch data. The March 18 meeting remains a near-certain hold, with a roughly 96% probability of no change, but the calculus beyond that is shifting quickly. The problem is Oil. With WTI above $89 and Brent above $91, the inflationary impulse from energy prices threatens to offset any dovish pivot the Fed might otherwise make on the back of weak labor data. It's a classic stagflation bind — the economy is weakening, but the cost of energy is rising, and the Fed can't ease aggressively without risking an inflation resurgence. Treasury yields reflected this tension, with the 10-year pushing above 4.17% and the 2s10s spread widening to 57 basis points.

Financials and industrials lead the selloff

Goldman Sachs (GS) dropped around 3.4%, American Express (AXP) fell 3.2%, and JPMorgan (JPM) slid roughly 3%, making financials the worst-performing group in the Dow for a second straight session. Caterpillar (CAT) continued its slide, down around 2.8%, as the weakening jobs picture and slowing global growth weighed on industrial names. Asset managers had a particularly rough day, with Blue Owl (OWL) dropping 6% amid concerns over private credit exposure, while BlackRock (BLK) and Blackstone (BX) each fell around 4%. On the other end, energy was the only sector in the green — Exxon Mobil (XOM) and Chevron (CVX) each gained more than 1%, while Occidental Petroleum (OXY) climbed 3.3% on the back of surging crude. Gold caught a bid as well, trading above $5,150 as the risk-off mood and rate cut repricing supported haven demand. The VIX spiked nearly 10% to above 26, reflecting the elevated anxiety heading into the weekend.

Dow Jones daily chart