Stock market news today: Tech stocks crushed, 10-year falls below 4% as weak data shows cracks in US economy
08/02/2024 03:13
Stocks tumbled Thursday after a run of weak economic data and another sell-off in chip stocks weighed on some of the names leading the hot AI trade.
US stocks came under heavy selling pressure Thursday as weak economic data and another sharp sell-off in chip stocks spurred losses across all three major indexes one day after the Federal Reserve signaled a likely rate cut in September.
The tech-heavy Nasdaq Composite (^IXIC) led losses, falling 2.3% after opening Thursday's session in green figures while Philly Semiconductor Index (^SOX) fell more than 7% as Arm Holdings (ARM) fell 15% after disappointing results, dragging down other market leaders including Nvidia (NVDA) and AMD (AMD), which fell more than 6% and 8%, respectively.
The benchmark S&P 500 (^GSPC) fell 1.4% while the Dow Jones Industrial Average (^DJI) lost 494 points, or 1.2%.
The 10-year Treasury (^TNX) yield moved below the 4% level for the first time since February, hovering near 3.98% after several weak economic data points crossed on Thursday morning.
The interest rate-sensitive Russell 2000 (^RUT) index, which had been rallying over the past month as markets priced in a high likelihood of a Fed rate cut in September, fell more than 3% on Thursday.
The latest ISM data out on Thursday showed the US manufacturing sector sank further into contraction territory during July. Other releases showed jobless claims rose to an 11-month high last week and construction spending unexpectedly declined in June.
Piper Sandler's chief investment strategist Michael Kantrowitz reasoned Thursday's action showed markets digesting recent economic data as "bad news," despite potentially pointing to steeper Fed rate cuts in 2024.
"When yields go down it could still be a good thing going forward if it comes from lower inflation," Kantrowitz told Yahoo Finance. "But [not] if it comes from higher unemployment, bad [manufacturing data], bad earnings, and bad macro data.
Kantrowitz added that slower economic data may have been "good news a year ago when everyone was worried about inflation — that's not the case today."
And with a September rate cut from the Fed all but certain after Wednesday's policy announcement, investors on Thursday moved to price in even more aggressive moves from the central bank this year. Data from the CME Group showed traders pricing in a roughly 25% of a 50 basis point rate cut in September, up from just an 11% chance one day ago.
The next key data release will come on Friday, with the release of the July jobs report, which is expected to show the US economy added 175,000 jobs last month with the unemployment rate holding at 4.1%.
Some individuals stocks were able to find a reprieve on Thursday after positive quarterly earnings reports, most notably by Meta (META), which rose 4.4% after the social media giant reported better-than-expected results on Wednesday afternoon.
Earnings from Apple (AAPL) and Amazon (AMZN) due after the bell were also set to test investor appetite for continued AI investment from Big Tech leaders, which faced some resistance after reports from Alphabet (GOOG, GOOGL), Microsoft (MSFT), and Tesla (TSLA) late last month.
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More Fed rate cuts aren't always welcome by investors
Thursday's market action was highlighted by a move lower in rates following a string of weaker-than-expected economic data.
As seen in the chart below, investors are now pricing in steeper rate cuts for 2024. But despite recent trends of areas like small caps ripping higher as Fed rate cut bets amp up, the opposite happened on Thursday.
This was a noted shift from investors. After a month of more rate cuts meant rallies in areas that could benefit from a soft landing in the US economy, more rate cuts meant worries about the economy and stock market selloff on Thursday.
As of Thursday, markets are now pricing in a full three interest rate cuts in 2024, with the odds of a 50 basis point cut in September on the rise.
Another down day for Nvidia
Nvidia is down more than 7% as part of a broader market selloff on Thursday.
Yahoo Finance's Ines Ferre reports:
Shares of the AI chip heavyweight declined along with the rest of the Tech sector (XLK) after weak economic data released during the session sent the 10-year Treasury (^TNX) yield lower and stocks fell.
The stock decline was a reversal from the prior session's monster 13% rally after peer AMD (AMD) posted better-than-expected quarterly results and guidance in a sign that investments in AI haven't slowed down.
"These hyperscalers ... their capital expenditures are high and potentially even rising into 2025. So this bodes incredibly well for Nvidia,” said Harvest Portfolio Management co-chief investment officer Paul Meeks on Thursday.
Nvidia doesn't reveal who its largest customers are, but according to Bloomberg data, Meta Platforms (META), Amazon (AMZN), Alphabet (GOOGL,GOOG) and Microsoft (MSFT) account for more than 40% of Nvidia's top line.
Microsoft makes up roughly 19% of the AI chipmaker's revenue, according to Bloomberg data. This week the tech giant revealed capital expenditures of almost $56 billion for the full year ending June 30.
Microsoft said it expects to increase its infrastructure investments in fiscal year 2025 more than it did in 2024.
"The fear of potentially some of this momentum not lasting, or maybe fear that the revenue trajectory wouldn't be there over the next 12 months or so — I think is starting to ease," CFRA senior equity analyst Angelo Zino told Yahoo Finance on Wednesday.
Bitcoin was the tell
As stocks were ripping on Wednesday, all was not necessarily well across financial markets.
And the first tell came from crypto.
Bitcoin (BTC-USD) prices were down about 5% on Thursday, but the latest slide from around $67,000 towards today's lows under $63,000 began just after US equity markets closed on Wednesday.
With bitcoin and ether ETFs having gained approval from the SEC and these instruments likely to make their way into more portfolios of the typically staid variety from savers of all kinds — not just the risk-taking early adopters accustomed to swings of this magnitude on a regular basis — the role crypto plays both as a barometer of markets and, in this case, a leading indicator of unease below the surface is likly to rise over time.
The long road to September for markets
August has just begun, but after Wednesday's Fed meeting all the market's attention turned to September.
The road between here and there, however, appears to come with a new set of terms and conditions from the environment that prevailed up to and through the Fed's decision to hold interest rates steady this week.
Which, as one trader put it on Twitter this morning, is that bad news is bad news again.
when the market already knows cuts are coming, bad news is bad news for markets
— aubrey plaza accord (@selling_theta) August 1, 2024
One of the market's most enduring and maddening clichés says that good news is bad news (and vice versa).
The logic on this one basically says that given stocks prefer interest rates to be lower, all else equal, negative economic developments that would either keep rates low or prompt future rate cuts are good for risk assets.
Except right now, there's no doubt about the future outlook for interest rates — they are going lower in seven weeks.
Now, it is possible (if not likely) a series of days like today would prompt a more serious discussion about a 0.50% rate cut instead of the 0.25% cut expected by most. But the direction of rates is not in question.
Which means when we get a couple of economic data reports like this morning's one-two punch of rising jobless claims and soft manufacturing output, investors take it at face value.
Bad news for the economy is bad news for stocks because a worse economy is worse for most businesses.
Any relief investors might see from falling interest rates? That's already in the price.
Jobs report could trigger closely watched recession indicator
Another recession indicator is close to flashing red.
The Sahm Rule, developed by economist Claudia Sahm, says that the US economy has entered a recession if the three-month average of the national unemployment rate has risen 0.5% or more from the previous 12-month low. The rule has successfully predicted recessions 100% of the time since the early 1970s.
If Friday's July jobs report reveals the unemployment rate rose to 4.2% during the month, the Sahm Rule would be triggered.
But economists, including Sahm herself, are cautious about such an outcome being used to conclude a recession is imminent for the US economy given the current economic backdrop.
"The rise in the unemployment rate is not as ominous as it would normally seem," Sahm wrote in a July 26 post on Substack.
Sahm reasons that the current uptick in unemployment doesn't account for recent shifts in the labor market that haven't been as common in prior occurrences where the Sahm Rule was triggered, including pandemic distortions of labor force participation and a massive increase in immigration.
"In past recessions, the share of entrants — those without work history or those returning to the labor force — fell," Sahm wrote. "The weakening in the labor market discourages them from looking for work. Currently, the entrant’s share is unchanged. That would be consistent with increased labor supply from immigrants pushing up unemployment and not a sign of weakening demand as is typical in a recession."
Bank of America Securities head of US economics Michael Gapen recently told Yahoo Finance he also doesn't see the Sahm rule as a useful recession tool in the current economic moment.
"The unemployment rate is rising largely because growth in the labor force from immigration is outpacing labor demand," Gapen said.
For now, Gapen said, the recent uptick in unemployment is not a story about firms cutting costs through more layoffs.
Asked whether he was worried about the Sahm rule getting triggered at a press conference Wednesday, Federal Reserve Chair Jerome Powell said, "The question really is one of are we worried about a sharper downturn in the labor market. The answer is we are watching carefully for that." He characterized the rule as a "statistical regularity." "It's not like an economic rule where it's telling you something must happen."
Mortgage rates fall to lowest level since early February after Fed hints at potential rate cut
Mortgage rates dropped to their lowest level since early February after the Federal Reserve set the stage for a September interest rate cut.
The average rate on the 30-year fixed-rate mortgage fell to 6.73% from 6.78% a week prior, Freddie Mac reported on Thursday. A year ago, the average rate on a 30-year fixed-rate loan was 6.9%.
Separately, the average rate for the 15-year fixed mortgage was 5.99%, down from 6.07% a week prior. The rate on a 15-year loan was 6.25% a year ago.
The data's release came a day after the Fed held interest rates steady at its July policy meeting but hinted that it's closer to cutting rates as it cited "some further" progress on inflation. Fed Chair Jerome Powell told reporters a September cut "could be on the table."
The decline is a welcome decline for prospective homebuyers grappling with affordability. Home prices hit another record in May.
“Expectations of a Fed rate cut coupled with signs of cooling inflation bode well for the market, but apprehension in consumer confidence may prevent an immediate uptick as affordability challenges remain top of mind. Despite this, a recent moderation in home price growth and increases in housing inventory are a welcoming sign for potential homebuyers," Sam Khater, Freddie Mac’s chief economist, said in a release.
Nasdaq, S&P 500 tumble as tech stocks slide
The Nasdaq and S&P 500 tumbled on Thursday as technology and energy stocks led the declines.
The S&P 500 Technology Sector ETF (XLK) fell more than 2%. Shares of Nvidia (NVDA) dropped more than 3% along with other chip stocks.
The Energy Sector (XLE) also dropped more than 2%. Interest rate sensitive stocks such as Real Estate (XLRE) and Utilities (XLU) rose during the session.
The S&P 500 (^GSPC) fell about 1%, while the tech-heavy Nasdaq Composite (^IXIC) also dropped more than 1.4%. The Dow Jones Industrial Average (^DJI) slid roughly 500 points.
The rollover in major averages occurred mid-morning, erasing early session gains after the 10-year Treasury (^TNX) yield moved below the 4% level to hover near 3.98% for the first time since February.
The move in bonds came a day after Fed Chair Jerome Powell hinted a September rate cut. Weak ISM manufacturing data and a spike in jobless claims released on Thursday pointed to signs of a cooling economy.
Semiconductor stocks drop as Nasdaq sinks 1%
Semiconductor stocks slipped on Thursday as the major averages rolled over, erasing early morning gains.
AI chip giant Nvidia (NVDA) fell more than 2% after gaining nearly 13% in the prior session. Broadcom (AVGO) and ASML (ASML) also dropped more than 4%.
Chips were on fire during Wednesdays session after AMD (AMD) posted better than expected results and Microsoft (MSFT), a buyer of AI chips, said it increased capital expenditures on its data center infrastructure.
Chips stocks fall, giving back some of the prior session's gains. Stocks drop as weak economic data points to cooling economy
Stocks erased early morning gains, sinking into red territory as the 10-year Treasury (^TNX) yield fell below the 4% level for the first time since February.
The S&P 500 (^GSPC) dropped 0.7%, while the tech-heavy Nasdaq Composite (^IXIC) fell roughly 0.9%. The Dow Jones Industrial Average (^DJI) sank 0.9%.
As Yahoo Finance's Josh Schafer reported, the US manufacturing sector sank further into contraction territory in July. The ISM's manufacturing PMI registered a reading of 46.8 in July, down from June's reading of 48.5 and lower than the 48.5 economists expected, according to Bloomberg data.
Meanwhile, weekly jobless claims once again rose more than expected last week, in the latest sign of a cooling labor market.
The move lower in stocks comes after a hefty rally on Wednesday following Fed Chair Jerome Powell's comments at the conclusion of the central bank's two-day policy meeting. Powell laid the groundwork for the likelihood of an interest rate cut in September.
10 Year Treasury yield moves below 4% for first time since February
On Thursday, the 10-year Treasury (^TNX) yield moved below the 4% level to hover near 3.98% for the first time since February.
The move comes a day after Fed Chair Jerome Powell said a September rate cut was "on the table."
US manufacturing enters deeper contraction
The US manufacturing sector sank further into contraction territory during July.
The ISM's manufacturing PMI registered a reading of 46.8 in July, down from June reading of 48.5 and lower than the 48.5 economists expected, according to Bloomberg data. The reading was the lowest since November 2023.
A print above 50 for this index indicate an expansion in activity, while one below 50 indicates contraction.
“Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and other conditions," chair of the Institute for Supply Management Timothy Fiore said in a release.
Stocks open higher after Fed decision, Meta jumps 8%
Stocks opened higher on Thursday to build on the prior session's rally after the Federal Reserve laid the groundwork for a September rate cut and Facebook parent Meta (META) reported better than expected results.
The S&P 500 (^GSPC) climbed 0.4%, while the tech-heavy Nasdaq Composite (^IXIC) gained almost 0.5%. The Dow Jones Industrial Average (^DJI) edged up 0.4%.
Stocks rose after Fed Chair Jerome Powell said on Wednesday that a September interest-rate cut "could be on the table."
Meta shares rose about 8% after a strong quarterly report from the social media giant. Like other Big Tech firms, Meta said it expects "significant" capital-expenditure growth in 2025 as it builds out its AI-focused infrastructure.
Jobless claims rise more than expected
Weekly jobless claims once again rose more than expected last week, in the latest sign of a cooling labor market.
New data from the Department of Labor showed 249,000 initial jobless claims were filed in the week ending July 27, up from 235,000 the week prior and above the 235,000 economists had expected. This marked the highest level of weekly filings since August 2023.
Meanwhile, the number of continuing applications for unemployment benefits once again hit its highest level since November 2021, with 1.877 million claims filed in the week ending July 20, up from 1.84 million the week prior.
"The claims data of the past few weeks have been signaling incremental labor market weakness, albeit from a position of strength," Jefferies US economist Thomas Simons wrote in a note on Thursday. "This is another step in the process of the labor market coming into better balance, but we must remain vigilant in watching for signs of slack. We are particularly concerned about a negative impulse in the labor market data, but things can deteriorate quickly once they start."
