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 across the board overnight. The Dow Jones Industrial Average briefly dropped over 900 points during trading, the Nasdaq plunged at the close, and major tech stocks collectively suffered heavy losses, with Nvidia falling over 3%.

On the news front, the U.S. Bureau of Labor Statistics (BLS) released the February non-farm employment report on Friday, showing a net decrease of 92,000 jobs, far below expectations and 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 the economic outlook.

Meanwhile, escalating tensions in the Middle East have heightened the risk of renewed U.S. inflation, with international 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 up oil prices, renewed tariff uncertainties, and a complex employment market story, the Federal Reserve faces a challenging stagflation risk scenario.

U.S. Stocks Drop 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 was down 0.95%, the Nasdaq fell 1.59%, and the S&P 500 declined 1.33%.

Large-cap tech stocks also fell broadly. Intel dropped over 5%, Nvidia fell 3%, Amazon, Tesla, and Meta declined over 2%, Apple dropped more than 1%, and Microsoft and Google closed slightly lower.

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

Most popular Chinese concept stocks gained, with the Nasdaq Golden Dragon China Index rising 0.69%. JD.com and Xpeng Motors surged over 6%, Ctrip and NetEase gained over 3%, Pinduoduo and Kingsoft Cloud rose over 1%, and Alibaba increased 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, which intensified 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 Federal Reserve 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 jobs, far below the expected increase of 55,000 and missing the most pessimistic forecast by 83,000, a deviation of six standard deviations. This is the second month of negative growth since 2020, second only to October last year’s decline of 140,000.

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

The unexpectedly poor employment data has shaken expectations of a soft landing for 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 raised concerns about stagflation risks.

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

According to CME’s “FedWatch,” the probability of the Fed cutting rates by 25 basis points in March is 4.5% (previously 4.7%), with a 95.5% chance of holding rates steady (previously 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 (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.

Nick Timiraos, Chief Economics Correspondent for The Wall Street Journal, known as the “voice of the Fed,” said this report brings the Fed closer to its most feared scenario—rising inflation coupled with declining employment.

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

Deep Divisions Within the Federal Reserve

Recent speeches by Fed officials reveal ongoing significant disagreements within the Fed.

On March 6, Federal Reserve Governor Christopher Waller stated that the Middle East war would not have a sustained impact on U.S. inflation and reiterated his preference for a 25 basis point rate cut.

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 one-off energy price fluctuations. 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 persistent inflation.”

Previously, Waller voted against the January rate hike, citing signs of continued weakness in the labor market.

Regarding the latest February non-farm payroll data, 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 rising oil prices driven by Iran tensions, which pose “dual risks” with high inflation.

She said the disappointing February jobs 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 one monthly data point and shouldn’t be over-interpreted.”

Daly 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 face risks. 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 appears moderate.

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