Uncertainties and crises affect US equities
Disappointing quarterly reports and planned mass layoffs at tech giants, weak labor market data, and conflicts like in the Middle East - all of this is fueling uncertainties among US investors heading into the weekend. This is also reflected in the "fear gauge" on Wall Street, which has reached its highest level in months.
Fear of an economic downturn accelerated the sell-off on Wall Street as the week came to a close. Surprisingly slow job growth and rising unemployment in July brought the topic of recession back into the trading rooms. Investors were also unsettled by the escalating tensions in the Middle East and the increasing risk of war in the crisis region. The VIX index, which measures the volatility of the US stock market and serves as a kind of fear gauge on Wall Street, rose to its highest level since March 2023.
Disappointing quarterly reports from US tech giants Amazon and Intel sent investors fleeing from the highly valued sector on Wall Street. The tech-heavy Nasdaq closed 2.4% lower at 16,776 points. The Dow Jones index fell 1.5% to 39,737 points. The broad-based S&P 500 lost 1.8% to 5,346 points.
Tech stocks, driven by AI hype, had been leading US exchanges from record to record in recent months. Investors should expect significant price fluctuations in the sector, said Michel Purves, CEO of Tallbacken Capital. However, these should only be of short duration. "The earnings weren't great, but they weren't bad either."
Between Hope for Rate Cuts and Recession Fears
A weak US jobs report fanned fears of a recession later in the year. Only 114,000 new jobs were added outside the agriculture sector in July, well below the 175,000 expected by Reuters. The unemployment rate unexpectedly rose to 4.3% in July. The data put pressure on the Federal Reserve to quickly cut rates, said analysts at Bantleon. "If the next jobs report comes in negative again, the Fed may feel forced to initiate a 50 basis point cut or even act before the next meeting." However, Federal Reserve Bank of Chicago President Austan Goolsbee said the Fed should not "overreact" to the numbers of a single month and should maintain a steady course.
The US dollar fell on the foreign exchange market as bets on lower rates increased. The dollar index, which measures the dollar against other major currencies, fell 1.1% to 103.20 points. Meanwhile, investors sought the safety of government bonds, pushing up their prices and lowering their yields. The yield on US Treasuries fell to 3.819% from 3.978%. On the commodities market, concerns about demand put significant downward pressure on oil prices. Both Brent and WTI crude prices fell by up to 3.5%, pulling down energy sector stocks. Chevron also suffered from missed earnings expectations, with its shares falling 2.7%.
Uncertainty in the Tech Industry
Intel stocks plunged by more than a quarter. Investors fled due to planned mass layoffs and dividend cuts. Amazon dropped by 8.8 percent. The mood was dampened by sluggish online sales and high costs for expanding computing power for Artificial Intelligence (AI). Snap shares fell nearly 27 percent. A bleak outlook from Snapchat's parent company fueled investor fears of market share losses in the competitive digital advertising market. Apple stocks bucked the trend, gaining 0.7 percent. iPhone sales for the quarter exceeded expectations.
The weak job growth and rising unemployment in July have brought concerns of a potential economic recession into the trading rooms, focusing the attention of investors on the state of the economy. The fear of an economic downturn and its impact on tech giants is causing uncertainty among investors, leading to sell-offs in sectors like technology.
