Friday marked a significant downturn for the US stock market, with all major indices experiencing substantial losses. The primary catalyst for this decline was a weaker-than-expected jobs report for July, raising concerns about the health of the US economy and the potential for a recession.
Jobs Report and Economic Data
Data from the Bureau of Labor Statistics released Friday showed the labor market added 114,000 nonfarm payroll jobs in July, fewer additions than the 175,000 expected by economists.
Meanwhile, unemployment rose 4.3%, up from 4.1% June. The unemployment rate is now at its highest level since October 2021.
Market Performance
The Nasdaq Composite suffered the most, falling by 2.4% and officially entering a correction, defined as a 10% decline from a recent peak. The S&P 500 and Dow Jones Industrial Average also experienced significant declines, shedding 1.8% and 1.5%, respectively.
Weekly Performance Summary
For the week:
- The Dow lost 1.36%
- The S&P 500 was down 1.9%
- The Nasdaq suffered a fall of 3.43%
Friday’s Closing Levels:
| Index | Close | Change | % Change |
| Dow Jones | 39,737.26 | -610.71 | -1.51% |
| S&P 500 | 5,346.56 | -100.12 | -1.84% |
| Nasdaq Composite | 16,776.16 | -417.98 | -2.43% |
| US 10-Year Yield | 3.79% | ||
| VIX | 23.39 | +4.80 | +25.82% |
Individual Stock Performance
News on individual stocks was just as downbeat as the economic data.
- Intel: The chipmaker’s disappointing earnings report added pressure on stocks, questioning the enthusiasm about AI and its high valuations.
Intel announced it would slash 15% of its workforce and suspend dividends after its sales forecast fell short and it missed earnings estimates. Intel shares sank over 26%, dragging on other chip stocks.
- Amazon: The stock slid almost 9% following sales guidance that was lower than Wall Street estimates.
- Apple: Shares were a relative winner, rising less than 1% after the company beat earnings expectations despite reporting a decline in iPhone sales.
Bond Market and Fed Expectations
The weak data sparked a rally in bonds, sending Treasury yields tumbling. The 10-year Treasury yield dropped more than 40 basis points in the past week, hovering near 3.79%, its lowest level since December 2023.
Markets are now pricing in more than four interest rate cuts from the Federal Reserve in 2024, or more than 100 basis points cumulatively, up from fewer than the three cuts seen a week ago, per Bloomberg data.
Bad News Finally Impacting the Market
Bad news is now bad news. For someone who has been warning about the market’s enthusiasm over poor data all year, it has taken more than 7 months to start getting attention.
New highs in 2024 were fueled by expectations of a Fed rate reduction based on weak data, which seemed wrong. The AI boom only added fuel to the fire.
Not too long ago, the market expected only 2 rate cuts and made new highs. Now, with calls for 100 basis points or 4 rate cuts this year, the market goes into a tailspin.
If the Fed needs to cut rates, it is not always good news. The Fed wants to normalise interest rates but not at the cost of higher inflation. The only way to comfortably lower rates is in anticipation of a slowdown. A slowdown should not equal new highs.
Market Sentiment and Future Outlook
Have investors finally got the picture, or is it just a pullback before another attempt to make new highs?
It’s too early to say. A positive catalyst could trigger another FOMO run. We’ve seen it before so I won’t be too overconfident that this selloff will continue.
While the Nasdaq down 10% from the highs and below the 100-day MA is significant, pointing to potential further deterioration, the market’s force that propelled it to new highs has not entirely disappeared.
There is still a lot of liquidity in the market, and positive returns in investors’ accounts cause a short squeeze. Rational thinking has been wrong all year, and just because we finally got it right does not mean that the markets will agree and let fear overcome greed.
Prepare for more volatility with an eye to further downside.
Source: CBOE, Bloomberg
This commentary is written by James Gomes, a seasoned finance industry veteran with extensive experience of over 30 years, including a substantial tenure at a reputable US bank exceeding 20 years.
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Disclaimer
This information contained in this blog is for general reference only and is not intended as investment advice, a recommendation, an offer, or an invitation to buy or sell any financial instruments. It does not consider any specific recipient’s investment objectives or financial situation. Past performance references are not reliable indicators of future performance. Doo Prime and its affiliates make no representations or warranties about the accuracy or completeness of this information and accept no liability for any losses or damages resulting from its use or from any investments made based on it.
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