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“The Fed could press on and slash rates to save the day, but the case for inter-meeting cuts seems weak,” said Brian Jacobsen, chief economist at Annex Wealth Management. “Those are usually taken for emergencies (like COVID), and 4.3% unemployment doesn’t seem like an emergency.”
The U.S. economy is still growing, and a recession is far from certain. The Fed made it clear when it began sharply raising interest rates in March 2022 that it was walking a tightrope: raising rates too aggressively would kill the economy, but raising rates too softly would inject more oxygen into inflation and hurt everyone.
Goldman Sachs economist David Merrick believes the odds of a recession in the next 12 months are higher after Friday’s jobs report. But he still sees only a 25% chance of a recession, up from 15%, in part because “the data generally looks good” and he “doesn’t see major financial imbalances.”
Some of Wall Street’s recent declines may also simply be weakness in a stock market that has hit dozens of record highs this year, fueled in part by enthusiasm for artificial intelligence technology and hopes for upcoming interest rate cuts. Critics have been saying the stock market looks expensive after prices have risen faster than corporate profits.
“When the market goes up it’s like climbing stairs, when it goes down it’s like falling out of a window,” said JJ Kinahan, CEO of IG North America. He attributed recent concerns to fading excitement about artificial intelligence and “markets being ahead of the curve.”
Professional investors also point to the Bank of Japan raising its key interest rate from near zero last week, a move that helps boost the value of the yen but could also force traders out of a trade that lets them borrow money at almost no cost in Japan and invest it elsewhere in the world.
U.S. stocks pared losses on Monday after a report showed that the U.S. services sector grew slightly stronger than expected. Data from the Institute for Supply Management (ISM) showed growth in the arts, entertainment and recreation sector, as well as accommodation and food services, were the main drivers. U.S. Treasury yields also pared losses after the better-than-expected data.
However, shares of companies whose profits are most closely tied to the strength of the economy fell sharply on concerns about a slowdown. Smaller companies in the Russell 2000 index fell 2.8%, further dampening the recovery momentum in the index and other beaten-down market sectors.
Adding to Wall Street’s woes, big tech stocks also fell as the market’s most popular trade for much of the year continued to unravel. Apple, Nvidia and several other large tech stocks known as the “Big Seven” have driven the S&P 500 to new highs this year even as high interest rates have weighed on much of the rest of the stock market.
But last month, momentum for big tech stocks reversed as investors worried that the companies’ stock prices were too high and expectations for future growth were becoming hard to achieve. A string of disappointing earnings reports from Tesla and Alphabet added to the pessimism and accelerated the decline.
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Apple shares fell 4.8% after Warren Buffett’s Berkshire Hathaway disclosed it had significantly cut its stake in the iPhone maker.
Nvidia Corp., the chip company that has become the poster child for Wall Street’s AI boom, fell even more, by 6.4%. this information The recent sell-off has reduced Nvidia’s year-to-date gains to 104% from 170% in mid-June.
Because the Big Seven are the largest companies by market capitalization, their stock movements have a greater impact on the S&P 500 and other indices.
Concerns beyond corporate profits, interest rates and the economy are also weighing on the market. The war between Israel and Hamas may be worsening, which, in addition to the loss of life, could cause big swings in oil prices. This has heightened concerns about potential hot spots around the world, and the upcoming U.S. election could further disrupt the situation.
Wall Street has been concerned about how policies unveiled in November will affect the market, but big swings in stock prices could affect the election itself.
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The threat of a recession could put Vice President Kamala Harris on the defensive. But slower growth could also lower inflation further and force former President Donald Trump to shift his current focus on high prices toward developing ways to revive the economy.
A strong job market supports consumer spending, which drives economic growth. The link between jobs and spending will remain a focus ahead of the U.S. presidential election, said Quincy Krosby, chief global strategist at LPL Financial.
“It all comes down to jobs,” she said. “On Election Day, the unemployment rate is going to be extremely important.”
Associated Press
The Market Review newsletter is a summary of the day’s trading. We all get itEgyptgood afternoon.
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