On Friday (August 2) during New York time, after the July non farm payroll report showed a further cooling of the labor market, the stock market intensified its struggle in early trading, prompting many analysts to say that the Federal Reserve's policy of maintaining high interest rates for a longer period of time may push the US economy into recession.

David Morrison, Senior Market Analyst at Trade Nation, said, "Since the Dow Jones, S&P, and Nasdaq all hit historic highs in mid July, these past few weeks have been really tricky. Since then, there has been a tech led correction, and this quarter's mixed earnings reports have not slowed this correction

Yesterday, the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq 100 Index fell by 1.2%, 1.4%, and 2.3%, respectively. But all of this ended with a 3% decline in the Russell Index, "he pointed out. Thursday's sell-off "offset all of Wednesday's rebound, causing some investors to worry that as we enter the core period of summer, there may be more pullbacks

Morrison said: "At the same time, bond prices soared because investors were eager to seek cover and seek safety in US treasury bond bonds. The yield of 10-year treasury bond fell below 4% for the first time since February this year."

He added, "This indicates that the Federal Reserve may now be behind the curve in relaxing monetary policy. September seems to be the first opportunity for a rate cut. However, recent data releases, including yesterday's ISM manufacturing PMI and weekly unemployment claims, suggest that the US economy may be rapidly cooling down

He warned, "If that's the case, the Federal Reserve may be forced to cut interest rates even more than previously implied, not because they are getting closer to their 2% inflation target, but because of concerns about an economic recession. As the S&P 500 index falls below the support level of around 5400 points, today's non farm payroll data may set the tone for us to enter the weekend. Given the changing market sentiment, we may see more 'safe haven' behavior if employment is significantly lower than the expected 176000 people

Morrison's prediction proved to be visionary, as data from the Bureau of Labor Statistics showed that the job market added 114000 non farm jobs in July, far below economists' expectations of 176000. Even worse, the unemployment rate has risen from 4.1% to 4.3%.

The signs of a slowdown in the job market may exacerbate concerns about economic recession and expectations of interest rate cuts, leading investors to adopt a safe haven attitude in the short term.

At the time of writing this article, the S&P index, Dow Jones index, and Nasdaq index were all in a state of severe losses, falling 2.34%, 1.82%, and 3.19% respectively. The Nasdaq index has officially entered a correction zone, falling 11.5% from its high on July 10th.

Traders currently expect three interest rate cuts starting from September this year, and many now anticipate that the Federal Reserve may cut interest rates by 50 basis points at its next meeting.

After the employment market data was released, the yield of the US 10-year treasury bond bond fell further below the 4% level, reaching the bottom of 3.793%, which was 3.824% as of the time of writing this article.

Charlie Bilello, Chief Market Strategist at Creative Planning, stated that the volatility index has surged to its highest level since March 2023, causing a surge in panic and forcing people to exit the market. He believes this is a signal of reverse buying.

Bilello added, "The S&P 500 index has fallen 5.6% from its peak on July 16th, marking the second correction of the year. This is the 29th time since the low point in March 2009 that there has been a pullback of more than 5% from the high point. At that time, they all felt like the end of the world.