U.S. stocks fell for the third straight day, with the Dow Jones Industrial Average dropping more than 1,000 points as concerns grew over the economic downturn due to a slowdown in employment and consumer spending.
The S&P 500 index fell 160 points, or 3%, to 5,186 on Monday, the index’s biggest single-day decline in nearly two years, according to FactSet. The tech-heavy Nasdaq Composite Index fell 3.4% as investors fled some of the Big Tech companies that until recently were driving the U.S. market rally. Apple fell 4.8%, while Meta and Nvidia fell 2.5% and 6.4%, respectively.
The Dow Jones Industrial Average fell 1,034 points, or 2.6% in value. Having fallen more than 1,200 points earlier in the day, the market slumped as Wall Street digested data from the Institute for Supply Management (ISM) Services Index on Monday, which showed that service jobs had rebounded in July. We have recovered some of our early losses. .
“The ISM report is encouraging, with business activity, new orders and employment all rebounding significantly in July,” Oxford Economics said in a research note on Monday. The report is “consistent with our view of an economy in transition rather than one on the brink of collapse.”
Despite Monday’s selloff, U.S. stocks are still in positive territory this year. Even including the recent decline, the S&P 500 rose 9.4% in 2024, while the Dow remained up 2.6%.
What is causing stock prices to fall?
Stocks fell on Thursday after a weak report on manufacturing and construction, raising concerns that the U.S. economy is finally faltering under the pressure of high interest rates.
And on Friday, government data showed employment was much lower than expected last month, raising the possibility of a “soft landing” in which the U.S. economy avoids recession despite the highest interest rates in 23 years. This reinforced Wall Street’s concerns that this was the case. hard landing.
“The main factor contributing to its staying power is the economic slowdown,” Paul Christopher, head of global investment strategy at Wells Fargo, said in a report. “Investors have focused on increasing financial stress on households over the past two years, while employment growth has slowed to an average of 180,000 new jobs per month from December 2009 to December 2019. remained above.”
But Friday’s jobs report showed employers added just 114,000 new jobs last month, far fewer than the 175,000 that economists expected.
Tech stocks have been particularly hard hit in recent weeks as investors exit artificial intelligence companies amid questions about when the emerging sector will turn a profit.
“It’s been a tough few weeks for AI Group following the earnings release,” Melius Research analysts wrote. “Microsoft, Meta, Google and Amazon were all asked about returns from AI investments. It’s clear countries need to keep spending, but the market remains skeptical about the pace.”
Financial advisor says stock market decline after unemployment spikes 07:48
The market rout spread to Asian and European markets, with Japan’s benchmark stock index plummeting 12.4% on Monday. The Nikkei Stock Average fell 5.8% on Friday, its worst two-day decline on record.
Stock prices in South Korea and Taiwan also fell sharply, and all three Asian markets were hurt as investors pulled out of companies focused on artificial intelligence over concerns that the sector was overvalued.
When will the Fed cut interest rates?
Disappointing economic data has Wall Street worried that the Federal Reserve has kept benchmark interest rates too high for too long, increasing the risk of a recession. The central bank kept the federal funds rate unchanged when it met on July 31 to discuss economic conditions and whether and when to start cutting interest rates.
Lower interest rates will make borrowing cheaper for U.S. households and businesses, but it may take some time for the effects to boost the economy. Some investors on Monday called for the Fed to start lowering interest rates sooner rather than later to prevent an economic downturn.
What are the chances that the Fed will cut rates in September? 04:14
Nigel Green, CEO of DeVere Group, an independent financial advisory and asset management firm, said: “The Federal Reserve is taking a more aggressive approach than expected to avert a looming recession in the world’s largest economy.” We need to start monetary easing.” By email. “The Fed was on the back foot at the beginning of the cycle, and it can’t afford to be on the back foot again this time.”
Economists still don’t predict a recession
Although concerns about a weak U.S. economy and volatile markets are spreading around the world, domestic economic activity remains strong and many analysts say a recession remains unlikely. Stephen Brown, deputy chief North American economist at Capital Economics, acknowledged that the risk of a sharp recession has increased, but still expects a soft landing.
The economy has accelerated this year, with gross domestic product (GDP) rising to 2.8% in the second quarter, exceeding previous expectations. Recessions are typically characterized by two consecutive quarters of negative GDP. And while July’s jobs report was disappointing, analysts say it reflects only one month’s worth of data, while the drop in July’s jobs report was due to Hurricane Beryl. They also point out that there may have been an impact.
“Reading too much into a single data release may be a mistake,” Sorita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, told investors in a research note. “The number of people who reported being unable to work due to weather (in July) was 436,000. This compares to an average of 33,000 in July since 2000.”
The Associated Press contributed to this report.
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