The stock market logged solid declines this week.
There were some winning sessions in the first half of the week, but growth concerns pushed to the fore during Thursday's session and sparked a strong sell‐off. The S&P 500 and Dow Jones Industrial Average each declined 2.1%, the Nasdaq Composite settled 3.4% lower than last Friday, and the Russell 2000 reversed its recent outperformance, dropping 6.7%.
The market learned Wednesday that the FOMC voted unanimously to leave the target range for the fed funds rate unchanged at 5.25‐5.50%, as expected.
Fed Chair Powell's subsequent press conference was largely what the market expected to hear. He didn't pre‐commit the FOMC to cutting rates at the September meeting, although he suggested more than once that the discussion of a rate cut would be on the table if the Fed gets the data it hopes it will get.
There was a muted response to these developments on Wednesday, but Thursday's economic releases had the market feeling like the economy is headed for a deeper slowdown while the Fed remains on pause.
Weekly initial jobless claims ‐‐ a leading economic indicator ‐‐ increased to 249,000 (Briefing.com consensus 233,000) from 235,000 last week, reflecting some softening in the labor market that may weaken discretionary spending. The ISM Manufacturing Index showed weakening in the manufacturing sector, dropping further into contraction territory to 46.8% in July (Briefing.com consensus 48.5%) from 48.5% in June.
Friday's release of the July Employment Situation report seemed to corroborate that the labor market is weakening. Nonfarm payrolls increased by just 114,000 (Briefing.com consensus 170,000), the unemployment rate jumped to 4.3% from 4.1%, and average hourly earnings decelerated on a year‐over‐year basis to 3.6% from 3.8%. A labor market that softens more than anticipated could translate into lower spending, which would impact earnings growth.
Treasuries surged in terms of price and plunged in terms of yield. The 2‐yr note yield, which is most sensitive to changes in the fed funds rate, settled 52 basis points lower at 3.87%. The 10‐yr note yield settled 41 basis points lower at 3.79%.
Market participants also repriced rate cut expectations in response to the data. The CME Fed Watch Tool now shows a 71.5% probability of a 50‐basis points rate cut at the September FOMC meeting versus 11.5% a week ago.
Earnings news from mega cap names was largely overshadowed by the slowdown worries. Meta Platforms (META) and Apple (AAPL) received positive responses to their reports, settling 4.8% and 0.9% higher, respectively. Microsoft (MSFT) and Amazon.com (AMZN) slid 4.0% and 8.0%, respectively, in response to their reports.
S&P 500: +12.1% YTD
Nasdaq Composite:+11.8% YTD
S&P Midcap 400: +6.0% YTD
Dow Jones Industrial Average: +5.4% YTD
Russell 2000: +4.1% YTD