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US Stocks Under Pressure: What's Going On?
US stock markets had a tough Thursday as investors digested new economic data and waited anxiously for further action from the Federal Reserve. Expectations were focused on a possible rate cut, which the regulator could announce as early as Friday.
Tech Sector Slips
The three major US stock indexes ended the day with significant losses. The technology sector was particularly under pressure, which was reflected in the decline of all indices. The Dow Jones Industrial Average (.DJI) lost 0.43%, reaching 40,712 points. The S&P 500 (.SPX) fell 0.89% to 5,570, while the Nasdaq Composite (.IXIC) fell 1.67% to end the day at 17,619.
Market sentiment: The Fed and the rate outlook
Market sentiment was also complicated by data from the Federal Reserve's meeting minutes released on Wednesday. According to the document, most Fed committee members believe that, subject to the expected data, a September interest rate cut will be a likely step. This statement strengthened market expectations for the regulator's future policy.
Labor market data and economic activity
Thursday also brought fresh statistics on the labor market, which showed an increase in the number of applications for unemployment benefits in the U.S. over the past week. This indicates a gradual slowdown in the labor market. At the same time, there is a decrease in business activity, which may indicate an overall slowdown in economic growth. These signs of easing inflation could give the Fed more leeway to focus on job creation.
Mortgage Rates and the Housing Market Recovery
With the economy slowing, mortgage rates have already begun to decline. This has spurred an unexpectedly strong rebound in existing home sales last month, one of the few positive signs in the current environment.
Experts' Forecasts
According to Steve Englander, market strategist at Standard Chartered Bank, the Fed minutes show that the Fed is close to achieving its inflation target. At the same time, rising unemployment increases the likelihood that the Fed will cut rates by 50 basis points in the near future.
As such, markets are anxiously awaiting the Fed's policy statements on Friday, which could shape the future of the U.S. economy and financial markets.
Expectations of a Victory over Inflation
Standard Chartered Bank's Steve Englander noted in his letter that while the Fed is not yet declaring a complete victory over inflation, it is clearly demonstrating confidence that this moment is near. Such statements heighten investor attention to the Federal Reserve's upcoming moves and their potential impact on markets.
Global Markets: A Sharp Reversal
Global stock markets, which have recently shown impressive gains after volatile swings, are under pressure again. The global stock index (.MIWD00000PUS) fell 0.6%, reflecting growing concerns among investors about the future developments in financial markets.
Europe: Growth Against the Trend
Despite the general nervousness in global markets, European stocks (.STOXX) managed to show positive dynamics, increasing by 0.35%. The leaders of growth were companies from the retail and healthcare sectors, which took advantage of the favorable market situation. Stocks were also supported by data from the euro zone, which showed an unexpectedly strong level of business activity in August.
Asian Markets in the Green
Asian stock markets also showed growth. MSCI's index of Asia-Pacific shares excluding Japan (.MIAPJ0000PUS) rose 0.3%. That's a sign of some optimism in the region despite overall volatility in global markets.
Oil is recovering
Oil prices, which had been falling on concerns about global demand, have started to rise again. U.S. crude and Brent have gained about 1.4% in a day, signaling investors are returning to energy-related assets.
Bond yields and the dollar: new trends
Eurozone bond yields rose after data showed better-than-expected service sector results in August. However, wage pressures in the region have eased, adding nuance to the overall economic picture.
The dollar, which recently hit a 13-month low against the euro, has started to recover. The dollar index rose 0.4%, indicating a return of confidence in the US currency ahead of a key speech by Fed Chairman Jerome Powell scheduled for Friday. Investors will be closely watching his comments, which could influence the future direction of the dollar.
As a result, global markets continue to show mixed dynamics, with expectations of further central bank action and the impact of macroeconomic data on investor sentiment taking center stage.
The impact of a US rate cut on the global economy
A potential rate cut in the United States could create a more favorable environment for central banks in other countries, giving them more room to maneuver. On Thursday, the Bank of Korea hinted at the possibility of a rate cut in October, while Bank Indonesia said it was prepared to cut rates in the last quarter of this year. However, there is a view in financial markets that the easing process in the US will last longer than in other parts of the world, which could have a significant impact on the global economy.
Market Expectations: Rate Outlook
Interest rate futures show that investors expect the US Federal Reserve to cut rates by 25 basis points next month, with a 50 basis point cut also possible. Forecasts indicate that US rates could fall by about 213 basis points to around 3.2% by the end of 2025. In comparison, Europe is expected to cut rates by a smaller amount, about 157 basis points, which would take the rate to around 2.09%.
US Treasury yields recover
US Treasury yields have started to recover after hitting two-week lows in the previous trading session, supported by a rise in yields in European bond markets. The yield on the US 10-year note rose 8.6 basis points to 3.862% from 3.776% the day before. The yield on the 2-year note also showed significant gains, rising 9.4 basis points to 4.0161% from 3.922% late Wednesday.
FX: Euro and Pound Performance
The euro, which had been steadily rising for the month, suddenly fell 0.4%. Meanwhile, the British pound showed interesting dynamics: it hit a fresh 13-month high against the dollar earlier in the day and strengthened against the euro. This happened against the backdrop of the publication of data that confirmed a steady increase in business activity in the UK in the second half of 2024. However, by the end of the day, the pound rate had slightly corrected and amounted to $ 1.3086.
Thus, global financial markets continue to react to the actions of central banks, as well as to macroeconomic data, which entails changes in bond yields and exchange rates. Investors' attention remains focused on the upcoming Fed decisions and their possible implications for the global economy.
Gold under pressure: what is behind the price drop?
Gold prices have sharply declined by more than 1%, which is associated with a stronger dollar and rising yields on US Treasury bonds. These factors put significant pressure on the precious metal, which is traditionally seen as a safe haven for investors in times of economic instability.
Central banks at the Jackson Hole Economic Symposium
Against the backdrop of such changes, key representatives of central banks from around the world gathered in Jackson Hole for the annual economic symposium. All eyes are on Fed Chairman Jerome Powell on Friday, where his words will determine how quickly and decisively the Fed will begin its easing cycle.
Anticipating the Fed's decision: Cautious forecasts
According to analyst Ladner, Powell is likely to calm markets by signaling a rate cut in September. However, he said the Fed chairman will be cautious in his comments, not making any firm statements about the size of the cut — 25 or 50 basis points. He is expected to try to set the market up for a more modest 25 basis point cut.
Those expectations were reinforced by statements from other key Fed figures. On Thursday, Kansas City Fed President Frank Schmidt, Boston Fed President Susan Collins and Philadelphia Fed President Patrick Harker all said they believed a rate cut was imminent and could begin soon.
Investors on edge: Volatility index rises
The CBOE Volatility Index (.VIX), often used as a gauge of market anxiety, rose sharply to 18, its highest intraday reading in a week. However, the index later eased slightly to settle at 17.56.
Tech sector under attack
Among the 11 major S&P 500 sectors, tech (.SPLRCT) was the biggest loser, falling 2.1%. At the same time, the real estate sector (.SPLRCR) was among the leaders of growth, which indicates a shift in investor interests amid the current market uncertainty.
Snowflake: Optimistic forecast and unexpected decline
Amid general instability, it is worth noting individual fluctuations in company shares. For example, Snowflake (SNOW.N) improved its forecast for annual revenue from products, but this did not help to keep the company's shares from falling. Despite the positive forecast, the shares of the cloud data company fell by 14.7%, as the margin forecast remained unchanged, which disappointed investors.
Thus, amid expectations of Fed decisions and general market turbulence, investors continue to look for stable positions, which is reflected in both the movement of large indices and individual stocks.
Zoom confidently gains heights
Shares of Zoom Video Communications (ZM.O) made an impressive leap, rising by 13.0%. The sharp rise came as the company improved its full-year revenue forecast. At a time when many companies are struggling, Zoom is demonstrating its ability to not only hold its ground, but to grow, which has caught the attention of investors.
Advance Auto Parts Slide: Negative Outlook
On the back of Zoom's success, Advance Auto Parts (AAP.N) shares have seen a sharp decline, losing 17.5% of their value. This happened after the company revised its full-year profit forecast downwards. This move disappointed investors, which led to such a significant decline in quotes.
Market in the Red: Stock Market Sentiment
The mood on the stock markets was clearly not optimistic on Thursday. Declining stocks outnumbered advancing ones on the New York Stock Exchange (NYSE) 2.16 to 1. The same was true on the Nasdaq, where for every one advancing, 2.25 fell.
New Highs and Lows amid Volatility
The S&P 500 posted 58 new 52-week highs on the day, despite the overall trend being down. At the same time, there was only one new low. The Nasdaq Composite also saw activity, with 83 new highs, but also a high number of new lows, at 68.
Trading Activity amid Declining Volume
Trading activity on U.S. exchanges declined, with total trading volume at 9.79 billion shares, below the 20-day average of 11.89 billion shares. The decrease in volume may indicate investor uncertainty and the expectation of further signals from the market.
Thus, the current market fluctuations continue to demonstrate complex sentiments among investors, where fears and caution dominate against the backdrop of individual successful companies.
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