Stocks Finish Sharply Lower on Economic Jitters

The S&P 500 Index ($SPX) (SPY) Monday closed down -3.00%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -2.60%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -2.96%.

US stocks Monday sold off sharply, with the S&P 500 and Nasdaq 100 dropping to 3-month lows and the Dow Jones Industrials falling to a 7-week low. Global equity markets were hammered on Monday and sparked risk-off sentiment in asset markets.  Recent weaker-than-expected US economic news has fueled concern that the Fed is too slow to cut interest rates to keep the US economy from heading for a sharp economic downturn.  Megacap technology stocks retreated Monday to lead the overall market lower, with Apple, Nvidia, Alphabet, Amazon, and Tesla closing down more than -4%. 

Monday’s plunge in global equity markets sparked a flight to safety into government debt and knocked bond yields lower as the 10-year T-note yield tumbled to a 14-month low, and the German 10-year bund yield fell to a 7-month low.

The plunge in stocks Monday has led to risk-off sentient in asset markets, with the price of Bitcoin (^BTCUSD) slumping more than -14% to a 5-1/2 month low and crude oil (CLU24) falling to a 6-month low.

Stock indexes recovered from their worst levels Monday as recession concerns eased slightly after the US Jul ISM services index rose more than expected.  Also, upbeat comments from Chicago Fed President Goolsbee supported stocks when he said that US economic growth continues at a "fairly steady level."

The US Jul ISM services index rose +2.6 to 51.4, stronger than expectations of 51.0.

Chicago Fed President Goolsbee said last month's job numbers "came in weaker than expected but are not looking yet like a recession" as US economic growth continues at a "fairly steady level."

The market consensus is that Q2 earnings for the S&P 500 companies will rise +9% y/y.  About half of the companies in the S&P 500 have reported thus far.  According to Bloomberg, most reporting companies have beaten their earnings consensus, but only 43% have beaten revenue expectations, the lowest percentage in five years.

The markets are discounting the chances for a -25 bp rate cut at 100% for the September 17-18 FOMC meeting a 98% chance for a -50 bp rate cut.

Overseas stock markets Monday settled sharply lower.  The Euro Stoxx 50 fell to a 6-1/2 month low and closed down -1.45%.  China's Shanghai Composite fell to a 5-3/4 month low and closed down -1.54%.  Japan's Nikkei Stock 225 fell to a 9-month low and closed down sharply by -12.40%.

Interest Rates

September 10-year T-notes (ZNU24) Monday closed down -2 ticks.  The 10-year T-note yield fell -2.4 bp to 3.766%.  Sep T-notes Monday jumped to a 14-1/2 month nearest-futures high, and the 10-year T-note yield fell to a 14-month low of 3.665%. Monday’s sharp selloff in global equity markets has sparked safe-haven demand for T-notes.  Also, recent weaker-than-expected US economic news has bolstered the odds for deeper Fed rate cuts as the swaps market has nearly priced in (98%) a 50 bp rate cut at the September 17-18 FOMC meeting.  In addition, a slide in inflation expectations is boosting T-note prices as the 10-year breakeven inflation rate fell to a 3-1/2 year low Monday at 1.932%.

T-note prices gave up their advance Monday after the US Jul ISM services index rose more than expected.  Also, comments from Chicago Fed President Goolsbeee weighed on T-notes when he said US economic growth continues at a "fairly steady level."  In addition, supply pressures weighed on T-notes as the Treasury will auction $125 billion of T-notes and T-bonds in this week’s quarterly refunding, beginning with Tuesday’s $58 billion auction of 3-year T-notes.

European government bond yields on Monday finished higher.  The 10-year German bund yield rebounded from a 7-month low of 2.078% and finished up +1.7 bp at 2.191%.  The 10-year UK gilt yield recovered from a 6-month low of 3.742% and finished up +4.1 bp at 3.869%.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 99% for the September 12 meeting.

US Stock Movers

Megacap technology stocks fell sharply Monday and weighed on the overall market.  Alphabet (GOOGL), Tesla (TSLA), and Amazon.com (AMZN) closed down more than -4%.  Also, Microsoft (MSFT) closed down more than -3%, and Meta Platforms (META) closed down more than -2%.

Nvidia (NVDA) closed down more than -6% following a report that the company’s upcoming artificial intelligence chips will be delayed due to design flaws.

Chip stocks slumped Monday and pressured the overall market.   Intel (INTC) closed down more than -6% to lead losers in the Nasdaq 100 and Dow Jones Industrials.  Also, Analog Devices (ADI) and Texas Instruments (TXN) closed down more than -3%.  In addition, ARM Holdings Plc (ARM), Micron Technology (MU), and Marvell Technology (MRVL) closed down more than -2%. 

Apple (AAPL) closed down more than -4% after Berkshire Hathaway reported Saturday that it had cut its stake in the company by almost 50% in Q2. 

Mining stocks sold off Monday after copper prices fell to a 4-1/2 month low and silver prices tumbled to a 3-month low.  As a result, Newmont (NEM) and Freeport McMoRan (FCX) closed down more than -2%.

Recession concerns undercut travel and casino stocks. Caesars Entertainment (CZR) closed down more than -6% to lead losers in the S&P 500.  Also, United Airlines Holdings (UAL) and Southwest Airlines (LUV) closed down more than -5%.  In addition, Norwegian Cruise Line Holdings (NCLH), Wynn Resorts (WYNN), Delta Air Lines (DAL), and MGM Resorts International (MGM) closed down more than -4%. 

Moderna (MRNA) closed down more than -3% after RBC Capital Markets downgraded the stock to sector perform from outperform, citing an “increasingly uncertain outlook.” 

Kellanova (K) closed up more than +16% to lead gainers in the S&P 500 after Reuters reported that Mars was exploring an acquisition of the company.

Tyson Foods (TSN) closed up more than +2% after reporting Q3 adjusted EPS of 97 cents, well above the consensus of 67 cents. 

Sotera Health (SHC) closed up more than +7% after reporting Q2 adjusted EPS of 19 cents, stronger than the consensus of 16 cents. 

Earnings Reports (8/6/2024)

Airbnb Inc (ABNB), Amgen Inc (AMGN), Assurant Inc (AIZ), Axon Enterprise Inc (AXON), Baxter International Inc (BAX), Broadridge Financial Solutions (BR), Builders FirstSource Inc (BLDR), Caterpillar Inc (CAT), Constellation Energy Corp (CEG), DaVita Inc (DVA), Devon Energy Corp (DVN), Duke Energy Corp (DUK), Expeditors International of Washington (EXPD), Fidelity National Information (FIS), Fortinet Inc (FTNT), Fox Corp (FOXA), Henry Schein Inc (HSIC), IDEXX Laboratories Inc (IDXX), International Flavors & Fragrance (IFF), Jacobs Solutions Inc (J), Kenvue Inc (KVUE), Marathon Petroleum Corp (MPC), MarketAxess Holdings Inc (MKTX), Molson Coors Beverage Co (TAP), Mosaic Co/The (MOS), Sempra (SRE), STERIS PLC (STE), Super Micro Computer Inc (SMCI), TransDigm Group Inc (TDG), Trimble Inc (TRMB), Uber Technologies Inc (UBER), Vulcan Materials Co (VMC), Wynn Resorts Ltd (WYNN), Yum! Brands Inc (YUM), Zoetis Inc (ZTS).

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.