The U.S. stock market endured its most significant downturn since May, reeling from a dual blow: a dramatic slowdown in domestic job creation and the implementation of extensive tariffs by President Donald Trump. This confluence of economic pressures sent ripples across global financial markets, signaling mounting anxieties among investors regarding the nation’s fiscal health and future stability.

The benchmark S&P 500 index bore the brunt of this apprehension, plummeting by 1.6%, marking its steepest decline since May 21st and extending its losing streak to four consecutive sessions. This sharp daily drop contributed to a substantial 2.4% weekly loss for the index, representing a stark reversal from the previous week’s record-setting ascent, underscoring the sudden shift in market sentiment.

A pivotal factor in the market’s decline was the latest labor report, which revealed a surprisingly sluggish pace of job growth. Employers added a meager 73,000 jobs in July, a figure considerably below economists’ projections. Further compounding the concern, the Labor Department announced significant downward revisions to May and June payrolls, shaving off an astounding 258,000 previously reported jobs, intensifying fears of a weakening economy.

Simultaneously, the financial world reacted nervously to President Trump’s latest pronouncements on trade tariffs. The administration announced new tariff rates targeting numerous countries and blocs, while pushing back the effective date to August 7th. This policy, a cornerstone of the current administration’s trade strategy, has consistently introduced a layer of unpredictability to the global trade landscape, fueling investor unease.

Echoing the market’s sentiment, Sam Stovall, chief investment strategist at CFRA, characterized the situation as a “one-two punch” from both the escalated tariffs and the unexpectedly weak employment data, further exacerbated by the substantial downward revisions to prior months. The perceived uncertainty was only amplified by reports of presidential interference concerning the agency responsible for compiling the monthly jobs figures.

The unexpectedly soft jobs report significantly recalibrated investor expectations regarding future monetary policy. The likelihood of a quarter-point interest rate cut by the Federal Reserve in September surged to approximately 87% from just under 40% a day earlier, according to data from CME FedWatch. This increased probability reflects the market’s conviction that economic weakness necessitates a stimulus.

The bond market also registered a strong reaction to the dismal economic data. The yield on the 10-year Treasury note, a key indicator of long-term economic expectations, fell to 4.21% from 4.39% just before the hiring report’s release—a notable movement in this typically stable market. Similarly, the yield on the two-year Treasury, which is highly sensitive to Fed actions, plunged from 3.94% to 3.68%, signaling heightened anticipation of rate adjustments.

Despite persistent calls, the Federal Reserve has maintained steady interest rates since December, navigating a delicate balance. While a rate cut could inject vitality into the labor market and broader US economy, it also carries the inherent risk of exacerbating inflation, which continues to hover stubbornly above the central bank’s 2% target. The Fed’s preferred measure of inflation ticked higher in June, rising to 2.6%, adding complexity to their policy decisions amidst concerns that trade tariffs will further fuel inflationary pressures.

The market’s anxieties extended globally, with major indices experiencing significant declines. Germany’s DAX fell 2.7%, and France’s CAC 40 dropped 2.9%, while South Korea’s Kospi tumbled 3.9%. Corporations, including retail giant Walmart and consumer goods behemoth Procter & Gamble, have already warned investors about rising costs due to import taxes, impacting profits and potentially leading to higher consumer prices. Even tech giants like Amazon and Apple, despite strong individual earnings reports, saw their stock prices fall, forecasting substantial financial hits from the ongoing trade tariffs.