Stocks sunk on Friday morning after investors were spooked by a weak jobs report.
The unemployment rate fell to the lowest level in almost three years – hitting 4.3 percent in July.
The Nasdaq dropped 2.2 percent, pushing it into correction territory, down more than 10 percent from a record high on July 11.
The S&P 500 was headed for its worst session in around two years, as recession fears accelerated on Wall Street.
The sell-off is a blow to Americans with retirement savings in 401(K) plans, which tend to be invested in major stock market indices. It will also impact interest rates, which set a guidepost for credit card and mortgage rates.
The Nasdaq index plunged on Friday morning after a disappointing jobs report
401(K) retirement savings
Many 401(K) workplace retirement accounts are invested in the major stock market indices.
That means that when stocks fall, those holdings will likely see their value fall.
But it is important not to succumb to the temptation of panic selling during a market downturn, according to Investopedia.
Instead, steps like diversifying and moving away from riskier stocks may help protect savings.
Retirement accounts are designed to be held over the long term. The S&P 500 has risen 172 percent over the last decade, despite many short-term swings, NBC News reported.
Interest rates
Wall Street is now ramping up expectations for a rate cut in September – and, increasingly, an aggressive easing cycle.
Economists at Citigroup and JPMorgan Chase adapted their forecasts for Fed policy following Friday’s weak jobs report.
Citigroup investors said they expected half-point rate cuts in September and November and a quarter-point cut in December, Bloomberg reported.
Previously the bank had predicted quarter-point cuts at all three meetings.
JPMorgan’s Michael Feroli forecast the same rate cuts, but also went a step further, suggesting that there is ‘a strong case to act’ before the next Fed meeting in September.
A rate cut would be good news for consumers, as elevated interest rates have kept borrowing costs high and put pressure on household budgets.
Credit card rates, for example, change in-line with the Fed’s benchmark figure, so would quickly reflect a cut and provide some respite for borrowers.
Car loans, student loans, and mortgages, are not directly influenced by the benchmark rate, but would be affected in turn.
Many 401(K) workplace retirement accounts are invested in the major stock market indices, so will be affected by market swings
The Federal Reserve held interest rates between 5.25 and 5.5 percent at its latest meeting
Mortgage rates
Rather than being directly impacted by the Fed’s benchmark borrowing costs, mortgage rates track the yield on 10-year Treasury bonds.
Following the jobs report, these rates also slid below 4 percent for the first time since February.
If interest rates were to fall, however, this could eventually trigger a slow decrease in home loan rates.
Elevated mortgage rates have kept the housing market stagnant, as sellers have stayed put and prospective homebuyers have been put off by expensive loans.
Any reduction in mortgage rates could help get the housing market moving.
Job losses
If there is a broader economic downturn in the US, this could lead to job losses.
In July, average hourly wages rose just 3.6 percent from the year prior, according to the Labor Department data released Friday.
This was the smallest year-over-year gain since May 2021.
Previously, wages had been growing faster than prices for more than a year, increasing buying power for workers.
Consumer spending is the most powerful force in the US economy. Any large drop in buying power for the average American could lead to further economic decline.
Store prices
If Americans began to cut back on spending, this could cause prices to fall slightly.
McDonald’s this week announced its sales fell last quarter for the first time since 2020 and profits slumped 12 percent, as consumers began to feel the pinch of price hikes.
If more consumers begin to dial down their spending, companies could begin to cut prices in response.