Wall Street digests the jobs report, credit downgrade and more earnings

Apple’s market capitalization fell to about $2.86 trillion Friday, below the historic $3 trillion mark it reached earlier this year, on the heels of the company’s quarterly earnings report on Thursday.

Apple said in its earnings report that revenue slipped 1% during its June quarter, marking its third consecutive year-over-year drop in quarterly revenue. The company also reported quarterly dips in revenue for iPhone, Mac and iPad.

One bright spot in the report, however, was a new revenue high for Apple’s services business, which includes Apple Music and Apple TV+.

But Apple’s CFO Luca Maestri said during a call with analysts Thursday evening that the company expects revenue performance for its quarter ending in September “to be similar to the June quarter.” The stock slid at market's open Friday morning, wiping out billions in market value for the tech giant.

Apple first closed with a valuation of $3 trillion on June 30, becoming the only company in the world to reach that milestone, as tech stocks rebounded this year from a bruising 2022.

Stocks ended Friday lower, closing out a volatile week of trading that saw investors grapple with a US credit downgrade, labor data and a slew of corporate earnings reports.

The Dow declined 149 points, or 0.4%. The S&P 500 slipped 0.5% and the Nasdaq Composite lost 0.4%.

All three major indexes fell for the week, with the S&P 500 and Nasdaq posting their biggest one-week declines since March.

Stocks sold off earlier this week when Fitch Ratings downgraded US debt from the highest AAA rating to AA+, with those losses continuing through the week.

Stocks initially rose on Friday, as investors parsed the July jobs report that indicated a softening but still strong labor market. The US economy gained just 187,000 jobs in July. That's below economists' expectations of a 200,000 net gain, according to Refinitiv.

Apple shares fell 4.8% after the iPhone maker on Thursday said sales slipped 1% during its June quarter.

Amazon shares gained 8.3% after the e-commerce giant said sales boomed on strong demand in the second quarter.

Zero-emissions truck maker Nikola saw its shares tank by 26% Friday after releasing its latest earnings and announcing that it will install its fourth CEO in as many months.

Tupperware shares gained 35.5% after the company said late Thursday that it had reached a deal with its creditors to reduce its interest payment obligations by $150 million.

Next week, Wall Street will be watching the July Consumer Price Index and Producer Price Index reports for signs that inflation is continuing to ease.

Tyson Foods, Under Armour, UPS, Lyft, Disney and Wendy's are all slated to report earnings next week.

As stocks settle after the trading day, levels might change slightly.

While federal employment data is sometimes considered a lagging indicator, some parts of the July jobs report hint at potential weakening ahead, economists cautioned Friday.

The temporary help services industry shed jobs for the sixth consecutive month, dropping by nearly 22,000 positions in July, according to Bureau of Labor Statistics data. Through July, the industry has lost 205,000 jobs, a 6.5% hit, since its recent employment peak in March 2022, BLS data shows.

"This suggests that the overall labor market will continue to slow down in the coming months," Selcuk Eren, senior economist at the Conference Board, said in commentary issued Friday.

Temporary employment activity is often viewed as a bellwether for future hiring activity: When times are good, businesses bring on more temps to take on extra work and potentially convert them into new hires; when times get lean, those positions are usually among the first to go.

Temporary employment declined in advance of the 2001 and 2008 recessions.

Separately, average workweek hours ticked down to 34.3 in July from 34.4 in June. During the past three months, average hours per worker fell at a 1.2% annualized rate, noted Preston Caldwell, Morningstar's chief economist.

"That offset the bulk of the job gains, meaning that aggregate hours worked increased at a mere 0.5% annual rate in the past three months — which is indeed below normal," he wrote. "Given that employers can only cut hours so much, this is a harbinger for increased layoffs and a slowed pace of total job gains."

Additionally, the teenage jobless rate rose for the third consecutive month, increasing to 11.3% from 11% the month before.

That's "another sign of the cooling employment picture," said Sung Won Sohn, finance and economics professor at Loyola Marymount University and chief economist of SS Economics.

Stocks fell Friday mid-afternoon, pivoting from a rally earlier in the day as investors continued to parse the July jobs report and corporate earnings.

The Dow fell 112 points, or 0.3%. The S&P 500 slipped 0.4% and the Nasdaq Composite declined 0.2%.

All three major indexes are on track to end the week down. The S&P 500 and Nasdaq are both on pace to post their biggest weekly loss since March.

Shares of Apple deepened their losses, falling 4.6% after the iPhone maker on Thursday said sales slipped 1% during its June quarter.

The VIX, known as Wall Street's fear gauge, climbed to 17, above where it closed on Wednesday when Fitch Ratings' downgrade of US credit helped drive a selloff.

The top US economist at JPMorgan Chase is the latest to join growing calls that the United States will likely avoid a recession this year.

Noting that projections for third-quarter data suggest the economy is "expanding at a healthy pace," the banking giant is revising its position, said Michael Feroli, chief US economist at JPMorgan Chase, in a note on Friday.

"Given this growth, we doubt the economy will quickly lose enough momentum to slip into a mild contraction as early as next quarter, as we had previously projected," he said.

Economists at JPMorgan Chase previously forecasted that the economy would tip into a recession starting in the fourth quarter of this year.

Still, the risk of an economic downturn is "very elevated," and could materialize if the Federal Reserve hikes interest rates for longer than expected or if the lagged effects of the hikes it's already taken put substantial pressure on the economy, wrote Feroli.

Tightening lending conditions, the restart of student loan payments in October and the loss of pent-up demand for workers could also slow down the economy's growth, according to the note.

"We believe recession risks were, and continue to be, elevated, but timing the exact quarter of the onset of a downturn may be inherently an exercise in dart-throwing," wrote Feroli.

The unemployment rate among Black workers fell in July to 5.8%, trailing downward after suddenly spiking from a record low.

For much of the past year, the Black unemployment rate had fallen, hitting a record low of 4.7% in April, according to Bureau of Labor Statistics data. But in May the rate shot up to 5.6%; and then by another 0.4 percentage points in June, to 6%.

Despite the slight retreat, the Black unemployment rate remains nearly double that of White workers, who had a jobless rate of 3.1% in July.

While the monthly unemployment data is often volatile and frequently revised, some of the recent trends are concerning for vulnerable workers, said William M. Rodgers III, vice president and director of the St. Louis Fed's Institute for Economic Equity.

"A contraction in employment still appears to be emerging," he wrote Friday. "The unemployment rates among young workers, Black men and Black women over the past five months have ticked upward. At the same time, their labor force participation rates have trended downward."

He added: "In short, vulnerable workers are having an increasingly difficult time finding a job rather than sidelined workers entering the workforce."

The vulnerable workers typically are more sensitive to macroeconomic shifts, he said, noting they are usually the "first fired" and "last hired" in economic downturns and expansions, respectively.

Based on the experience of these groups, the broader labor market may experience a decline in the coming months.

The monthly job gains may be moderating, but higher-than-expected wage growth should fuel concerns about a potential acceleration of inflation, former Treasury Secretary Larry Summers said Friday.

"If you look at wage inflation, it was faster for the month than the quarter, faster for the quarter than the year and running [at an annualized rate] for the quarter at about 4.9%," Summers said during an interview on Bloomberg Television’s Wall Street Week. "That's not consistent with 2% underlying inflation."

Economists were expecting to see a slight moderation in wage gains; however, those held steady for the second consecutive month.

Friday's report showed that average hourly earnings growth was unchanged at 0.4% from the month before and also unchanged at 4.4% year over year. Economists had projected a monthly gain of 0.3% and a 4.2% annual increase, according to Refinitiv.

"We're trying to land the plane on the runway, where we're worried the plane would crash short of the runway," Summers said during the interview, referencing the central bank's goal to rein in inflation while not causing a recession and massive unemployment.

"That certainly does not look like it's going to happen — we've got a very strong economy," he said. "We're worried that the plane will overshoot the runway."

Two Federal Reserve officials expressed optimistic views Friday about the job market’s cooldown, despite wages growing at a stronger clip last month.

The latest jobs report from the Labor Department showed that average hourly earnings rose 4.4% in July from a year earlier, an annual rate stronger than anything seen in the years leading up to the pandemic. Some analysts said in notes that the persistently strong wage figures reflected in the monthly employment reports might be a concern for the Fed, which is still trying to bring inflation down to its 2% target.

Federal Reserve Bank of Chicago President Austan Goolsbee isn't completely buying that.

"Wages are not a leading indicator of price inflation," Goolsbee said in an interview with Bloomberg Friday morning. He added that "we are getting the job market into balance" and doubled down on his optimism that the Fed can pull off a soft landing, or a scenario in which inflation falls to 2% without a recession.

Atlanta Fed President Raphael Bostic also played down concerns about wage growth complicating the Fed's inflation fight.

“It doesn’t surprise me that wages are still strong,” he told Bloomberg in a separate interview Friday. “During this whole high inflation period, worker wages have trailed inflation for quite some time and so we’re still in that catch-up period and I expect that we will still see strong wages.”

Bostic also expressed some comfort with the labor market's ongoing evolution.

“I expected the economy to slow down in a fairly orderly way, and this number — 187,000 — comes in continuing that pace,” he said. “I’m comfortable. I’m not expecting this to be over in a short period of time.”

Wages have been playing a role in pushing up consumer prices, but the extent of that is debated by economists. The Fed also puts more weight on the quarterly Employment Cost Index, which showed that pay gains cooled in the second quarter.

Friday's market rally picked up speed Friday mid-morning as investors continued reviewing cooler-than-expected July jobs data.

The Dow rose 221 points, or 0.6%. The S&P 500 gained 0.6%. The Nasdaq Composite added 0.9%.

Still, all three major indexes are on track to lose for the week after Fitch Ratings' downgrade of US debt sparked a broad selloff.

Apple shares continued to fall, slipping 3.2% after the iPhone maker said sales fell during its quarter ending July 1, marking the third consecutive year-over-year drop in quarterly revenue.

Amazon shares rose 11.3% after the e-commerce giant said sales boomed on strong demand in the second quarter.

The VIX, known as Wall Street's fear gauge, fell to 14.7. A value of 30 reflects extreme volatility in markets, while a value below 20 generally indicates stability.