New York (CNN Business)The Dow and the broader stock market are having a volatile day Thursday, as traders come to grips with another damaging economic report.
That initially spooked markets for the third-straight day. Stocks turned sharply lower following the closely watched report, with the Dow ( falling as much as 335 points at its lowest point. )
But stocks quickly rallied back, recovering most of their losses by midday, as investors’ hopes of a Fed rate cut increased dramatically. Expectations for a quarter-percentage-point interest-rate cut by the Federal Reserve jumped above 90%, compared to 77% on Wednesday and less than 50% last week, according to the CME FedWatch Tool.
Signs that the US economy is slowing could trigger a series of rate cuts or other forms of stimulus from the central bank. That typically helps boost markets, although bad news isn’t always good news: Lower interest rates are good for stocks, but the environment that tends to necessitate monetary easing usually isn’t.
The S&P 500 ( clung to gains and was up 0.2%, while the )Nasdaq Composite ( was up 0.4%. They also bounced back from their session lows. The Dow was down 40 points. )
Over the past days, stocks have tumbled on worse-than-expected economic data.
“Global manufacturing is facing plenty of of headwinds and now, that is spilling over into services,” wrote Jennifer Lee, senior economist at BMO.
The manufacturing sector has contracted for two straight months, hurt by the ongoing trade war with China and slowing global demand. But the services sector is by far the largest American industry. Although still growing, it is just barely expanding, according to ISM: The non-manufacturing index for September fell to 52.6, compared with 55 expected. A reading above 50 indicates growth.
Prices largely remained in check: Markit’s services inflation index was in line with expectations at 50.9.
“And the various services sectors will feel the hit even more once the new tariffs on European goods kick in on October 18th,” Lee said.
The United States plans to impose import tariffs on $7.5 billion worth of European-made goods as soon as October 18. The new tariffs follow a ruling against the European Union by the World Trade Organization, saying that Airbus was improperly subsidized.
Investors will also be particularly attuned to Friday’s jobs report. So far, US consumers have kept the economy growing in part thanks to a strong jobs market. Investors are now nervously looking for cracks in that foundation.