Quick Look:
- Major indices fell sharply, with the Dow Jones down 1.2%, the S&P 500 down 1.4%, and the Nasdaq down 2.3%.
- Meta’s shares rose 4.8% on strong quarterly results, but the increase could not offset the overall market decline.
- The ISM manufacturing index hit an eight-month low, triggering significant market selling.
- Utilities and real estate sectors rose amid economic and geopolitical concerns.
The stock market took a nosedive as August began, triggered by economic data suggesting a faster-than-anticipated economic slowdown, all while the Federal Reserve maintained its restrictive monetary stance. The Dow Jones Industrial Average plunged over 700 points before recovering slightly to close at 40,347.97, a loss of 494 points, or 1.2%. The S&P 500 followed suit, dropping 1.4%, and the Nasdaq shed more than 400 points, translating to a 2.3% decline.
Meta’s Upbeat Outlook Amidst Market Gloom
Initially, equities seemed poised for a joyous day, partly thanks to Meta Platforms. The tech giant’s quarterly results exceeded expectations, and its optimistic third-quarter forecast sent its shares up by 4.8% to close at $497.74. This initial boost, however, was not enough to counter the broader market’s downturn triggered by disappointing economic indicators.
ISM Manufacturing Data Fuels Concerns
The market’s turning point came with releasing the ISM manufacturing index, which fell to an eight-month low of 46.8 in July. This figure indicates contraction and set off a wave of selling. Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York, noted that negative data like the ISM report often leads to profit-taking and further selling.
Adding to the market’s woes, other economic data revealed an uptick in unemployment benefit applications, reaching an 11-month high. This suggests a potential softening of the labour market, although seasonal factors played a role in this increase. Such data points collectively painted a picture of an economy that might be losing steam faster than investors had anticipated.
Defensive Sectors and Geopolitical Jitters
Amid this turmoil, defensive sectors like utilities and real estate managed to post gains. These sectors typically perform well during economic uncertainty, and their rise was bolstered by geopolitical concerns that strengthened the dollar and drove Treasury yields lower. However, these gains were overshadowed by the broader market’s losses.
Mega-cap stocks, including tech titans Apple and Amazon, faced significant declines ahead of their quarterly results. These declines dragged down the tech and consumer discretionary indexes.
As a result, these sectors were among the worst performers out of the 11 major S&P sectors. This highlights the market’s skittishness around the upcoming earnings reports.
Small Caps and Chip Stocks Hit Hard
The small-cap Russell 2000 index took a hefty hit, dropping 3% in its most significant daily percentage decline since February. Small-cap stocks often benefit early in market rotations out of more expensive stocks, but they suffered greatly in this sell-off.
Nvidia, a major player in the chip sector, saw its shares tumble 6.7% amidst a broader rout in chip stocks. This was exacerbated by Arm Holdings’ conservative revenue forecast and Qualcomm’s warning of a revenue impact from trade restrictions, which saw their shares plummet 16% and 9.3%, respectively.
Mixed Fortunes: Moderna and Eli Lilly
Moderna experienced a dramatic 21% drop in the pharmaceutical sector after cutting its 2024 sales forecast for COVID-19 and respiratory syncytial virus vaccines by up to 25%. Conversely, Eli Lilly enjoyed a 3.5% rise following positive trial results for its weight-loss drug, Zepbound. The drug demonstrated a reduced risk of hospitalization and death for obese adults with a common type of heart failure, offering some good news amid the market’s broader struggles.
Navigating a Volatile Market
The market’s direction remains uncertain as investors grapple with these mixed signals. Positive earnings surprises might offer some respite, but as evidenced by the ISM report, harmful economic data can quickly reverse any gains. The coming weeks will likely be a rollercoaster as markets react to ongoing economic reports and earnings announcements. For now, the cautious optimism at the start of August has given way to a more defensive stance as traders brace for further market volatility.
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