All markets plummeted overnight! Major announcement from the U.S.! Significant disagreements within the Federal Reserve

U.S. stocks once again face a fierce sell-off.

Affected by unexpectedly weak U.S. employment data and a sharp surge in international oil prices, U.S. stocks plummeted overnight. The Dow Jones Industrial Average briefly dropped over 900 points during trading, the Nasdaq plunged at the close, ending down 1.59%, with major tech stocks all falling sharply—Nvidia dropped over 3%.

On the news front, the U.S. Bureau of Labor Statistics (BLS) released the February non-farm payroll report on Friday, showing a net decrease of 92,000 jobs, far below expectations, marking the second monthly negative growth since 2020; the unemployment rate rose to 4.4%. Analysts pointed out that the U.S. job market in February was severely impacted, sparking widespread concerns about economic outlook.

Meanwhile, escalating tensions in the Middle East have heightened the risk of renewed U.S. inflation, with international crude oil prices closing sharply higher on Friday. WTI crude futures for April surged 12.21%, with a weekly increase of 35.6%; Brent crude futures for May jumped 8.52%, with a weekly gain of 27.88%. JPMorgan Chase stated that, combined with Middle East conflicts pushing oil prices higher, renewed tariff uncertainties, and a complex employment market story, the Federal Reserve faces a challenging stagflation risk scenario.

U.S. stocks tumble across the board

On March 6, Eastern Time, all three major U.S. stock indices declined sharply. The Dow briefly fell nearly 2% during trading, but the decline narrowed later. By the close, the Dow fell 0.95%, the Nasdaq dropped 1.59%, and the S&P 500 declined 1.33%.

Large tech stocks in the U.S. also fell broadly. Intel dropped over 5%, Nvidia fell 3%, Amazon, Tesla, and Meta declined over 2%, Apple fell more than 1%, while Microsoft and Google saw slight declines.

Affected by a series of negative private credit events, asset management firms and bank stocks also fell sharply. BlackRock dropped over 7%, Ares Management declined 6%.

Most popular Chinese concept stocks rose. The Nasdaq Golden Dragon China Index gained 0.69%, JD.com and Xpeng Motors surged over 6%, Ctrip and NetEase rose over 3%, Pinduoduo and Kingsoft Cloud increased over 1%, Alibaba gained 0.35%.

Analysts noted that the tense Middle East situation caused a sharp rise in international oil prices, coupled with significantly worse-than-expected employment data, intensifying fears in the U.S. stock market. The Wall Street fear gauge VIX rose 22%, reaching its highest level since April last year, when markets were turbulent due to tariff uncertainties.

Bob McNally, President of Rapidan Energy Group, said, “Investor sentiment has quickly shifted from complacency to near panic, and a real panic moment may be imminent.”

Jeff Palma, Head of Multi-Asset and Macro Research at Cohen & Steers, stated, “On one hand, the economy is weak; on the other, oil prices are soaring. This combination is very hard for the market to digest.”

Ellen Zentner, Chief U.S. Economist at JPMorgan Wealth Management, said that, with Middle East conflicts pushing oil prices higher, renewed tariff uncertainties, and a complex employment story, the Fed faces a difficult stagflation risk scenario.

U.S. Non-Farm Payrolls Surprise

On the evening of March 6, Beijing time, the U.S. Bureau of Labor Statistics released data showing that in February, U.S. non-farm employment decreased by 92,000, far below the expected increase of 55,000, missing the most pessimistic forecast by 83,000, a deviation of six standard deviations. This is only the second month of negative growth since 2020, after October’s decline of 140,000.

At the same time, the U.S. unemployment rate unexpectedly rose from 4.3% in January to 4.4%, above the market expectation of 4.3%.

The unexpectedly poor employment data shook market expectations for a soft landing of the U.S. economy. Against the backdrop of rising input costs due to geopolitical tensions, the dual pressures of the labor market and inflation have heightened concerns about stagflation risks.

After the data was released, traders slightly increased bets that the Fed will cut rates at least once by 2026.

According to CME’s “FedWatch,” the probability of the Fed cutting interest rates by 25 basis points in March is 4.5% (down from 4.7%), with a 95.5% chance of holding rates steady (up from 95.3%). The probability of a 25 basis point cut in April increased to 17.7% (from 14%), with an 81.7% chance of no change (down from 85.5%). The chance of a 25 basis point cut by June rose to 40% (from 31.5%).

However, some analysts warn that amid escalating Middle East tensions, concerns about U.S. stagflation are intensifying, and the Fed may face a dilemma.

Wall Street Journal chief economics correspondent Nick Timiraos pointed out that this report brings the Fed “closer to its most feared scenario”—rising inflation coupled with declining employment.

Sonu Varghese of Carson Group wrote that the negative job growth in February is unlikely to change the Fed’s rate cut outlook for this year. The report reminds us that the risks in the U.S. labor market have not disappeared. On the other hand, with upcoming energy price shocks and AI-related bottlenecks, inflation was already high before these factors. He expects that the combination of these factors will constrain the Fed from cutting rates in the near term.

Deep divisions within the Fed

Latest speeches from Fed officials reveal ongoing significant disagreements within the Federal Reserve.

On March 6, Fed Governor Christopher Waller stated that the Middle East war would not have a lasting impact on U.S. inflation and reiterated his inclination to cut rates by 25 basis points.

In an interview with U.S. media, he said that although rising oil prices might impact consumers, policymakers would not adjust their stance based on a one-time energy price fluctuation. He emphasized that core inflation, excluding energy and food prices, is a more reliable indicator for future inflation trends.

Waller explicitly stated, “The oil price increase caused by the Iran conflict is a one-time disturbance and not enough to alter the Fed’s policy outlook. From a policy perspective, it’s unlikely to cause sustained inflation.”

Previously, Waller voted against the rate hike at the Fed’s January meeting, advocating for a 25 basis point cut due to signs of continued labor market weakness.

Regarding the latest February non-farm payroll report, San Francisco Fed President Mary Daly told CNBC that it deepened her concerns about the labor market. However, she believes this does not mean the Fed should immediately cut rates, especially given the backdrop of rising oil prices driven by Iran, which presents “dual risks” of high inflation and oil price increases.

She said the disappointing February employment report undermines the idea that the U.S. labor market is stabilizing.

Daly added, “I don’t think we should ignore this report, but it’s just a monthly data point, and shouldn’t be over-interpreted.”

She also noted that a job market with low hiring and firing is vulnerable to changes. Currently, both the Fed’s goals of stable employment and inflation control are at risk. She pointed out that inflation has been above the 2% target for five consecutive years. The impact of rising oil prices depends on how long the increase lasts, and wage growth currently isn’t excessive.

Additionally, Boston Fed President Susan Collins and Cleveland Fed President Beth Hammack both said they believe interest rates should remain “for some time.”