US stock markets close at a significant loss
Disappointment on Wall Street: After the tech rally on Wednesday, U.S. stocks are in a downward spiral today due to weak economic data. Biotech giant Moderna is feeling the heat, while Facebook's parent company Meta is shining.
U.S. stocks couldn't hold onto their initial gains on Thursday. Investor disappointment over recent economic data overshadowed the joy over strong quarterly results from Meta, Facebook's parent company. The Dow Jones Industrial Average of blue-chip stocks fell 1.2 percent to 40,347 points. The broader S&P 500 lost 1.4 percent to 5,446 points. The Nasdaq tech index dropped 2.3 percent to 17,194 points.
"The entire market is being influenced by the weak report on the U.S. industry," said Robert Pavlik, portfolio manager at Dakota Wealth. "The numbers show investors that the economy might be in worse shape than previously thought." The purchasing managers' index for the U.S. manufacturing sector fell to 46.8 points in July from 48.5 in June. Economists surveyed by Reuters had expected the ISM barometer to rise to 48.8.
Recession or normalization?
However, it's not certain that these data will prompt the Federal Reserve (Fed) to speed up its interest rate hikes, said Konstantin Oldenburger, analyst at broker CMC Markets. "While it does monitor the clear slowdown in the labor market and the broader economy, reflected in a range of indicators, it could also view this slowdown as a 'normalization' rather than the signs of an impending recession."
This is also why investors reacted relatively calmly to the Fed's statements when it left interest rates unchanged on Wednesday. While the central bankers around Fed Chair Jerome Powell left the key interest rate unchanged, they slightly opened the door to a rate cut without sending clear signals.
Weak economic data from China also weighed on sentiment. China's manufacturing sector shrank in July due to declining orders for the first time in nine months. "While Beijing's countermeasures are gradually expanding to more areas, the list of factors burdening the Chinese industry is unlikely to shorten in the near future," said Valentin Jansen, analyst at NordLB.
Meta's numbers impress - Moderna in free fall
Among individual stocks, Meta rose 4.8 percent. Robust advertising revenues have given the company a surprisingly strong quarterly result despite high costs for developing artificial intelligence (AI). "Meta has bought some time for the AI project, as investors are willing to overlook increased investment spending as long as revenue growth remains strong," commented Kathleen Brooks, manager at broker XTB.
Eli Lilly also gained 3.5 percent. The U.S. pharmaceutical company's weight loss injection showed clear benefits for heart patients in a study. Among smaller stocks, an optimistic annual forecast encouraged investors to buy shares in U.S. used car retailer Carvana, which jumped nearly 10 percent.
Moderna came under pressure, with its shares plunging by 21% after the US biotech giant slashed its revenue forecast for its Covid-19 and RSV vaccine portfolio. Arm's shares also took a hit, dropping by 15.7%, despite delivering a surprisingly strong quarterly result. The UK-based chip designer disappointed with its outlook.
The investor disappointment over the weaker-than-expected economic data, as indicated by the decreasing purchasing managers' index, is causing U.S. stocks to decline. The Dow Jones, S&P 500, and Nasdaq indices are all experiencing losses due to these economic concerns.
The weak economic data from China, reflecting declining orders and a shrinking manufacturing sector, is also contributing to the overall market uncertainty.
