Key Takeaways
- Stocks Fell Sharply On Weak Economic Data, Erasing Wednesday’s Gains
- Major Indices Dropped, With Nasdaq Down 2.3% And S&P 500 1.4%
- Weaker Jobs Report And Earnings Disappointments Fueled Market Volatility
Thursday morning began with stocks looking like they might pick up where they left off on Wednesday; however, by the end of the morning, optimism faded along with equity prices. When the day was over, the S&P 500 had experienced its largest intraday swing since November of 2022 and closed down 1.4%. The Nasdaq Composite fell 2.3%. Even the Russell 2000 and Dow Jones Industrial Average, which have held up better of late, were down 3.23% and 1.2%, respectively. The catalyst wasn’t just earnings, but rather weakening economic data.
The economic data was admittedly in some of the less discussed indicators; however, when things like construction spending begin declining, it leads to fears of overall weakening infrastructure spending. Those fears were furthered this morning by a weaker than expected employment report for July.
Economists were forecasting 176 thousand new jobs, according to Bloomberg; however, that number came in at just 114 thousand. The unemployment rate, which was expected to hold steady at 4.1% jumped to 4.3%. One area I found positive, but seems to have been overlooked, is where the jobs are being created. Healthcare and Construction were areas of strength, which is a good thing. When jobs are being created in core infrastructure sectors, it’s usually a good economic sign. However, when the overall jobs number is weak, those positives are often overlooked. Therefore, while the initial reaction to the jobs number has been negative in premarket, I’m curious how investors will ultimately digest today’s report.
On the earnings scorecard, we did hear from some of the bigger names overnight. Apple reported iPhone revenue was down for the second consecutive quarter. China, Apple’s third largest regional market, saw revenues fall more than 6%. However, the company stressed they believe a major iPhone refresh cycle is coming with the release of Apple Intelligence. The stock, which initially sold off after the close on Thursday, is unchanged in premarket.
Amazon also reported on Thursday after the close. The retail giant delivered a weaker than expected revenue forecast. The company also said capital spending to expand data centers for the just ended quarter was up 50% over last year. As I talked about in recent columns, this struck me as another example of Artificial Intelligence (AI) spending but no real answer on AI profitability. As a result, Amazon stock is indicated lower by 8% in premarket.
Perhaps the worst earnings report came from Intel. The chipmaker reported revenues down 1%, missing analyst expectations and sending the stock down 20% after hours, its biggest down move in over two decades. To combat the company woes, Intel announced they would let go of 15,000 employees and suspend the company dividend in an effort to cut expenses by $10 billion in the next year.
Shares of Coinbase are higher after the company beat on revenues. The crypto trading platform said trading volumes increased as regulatory burdens began easing. In what has been a difficult and sometimes hostile regulatory environment, recent changes and optimism of a more friendly political view of crypto have helped spur the sector. In premarket, shares of Coinbase are up around 1.4%
In the oil space, both Exxon Mobil and Chevron Corp are out with their earnings. Exxon reported a record quarter of production thanks in large part to their recently completed purchase of Pioneer Resources. That acquisition contributed $500 million to the company’s earnings. Shares of Exxon are up fractionally in premarket. In the meantime, lower refining margins caused Chevron’s second quarter earnings to fall, missing expectations. That stock is relatively unchanged in premarket.
Turning back to the macro-economic picture, I think the focus of the market is no longer simply about earnings, but instead, what earnings are saying about the economy overall. We already had the Bank of England cut interest rates this week. That was the first time they cut rates in four years. On Thursday, both the 2 and 10-year notes saw yields experience their largest one-day drop since December. Surging bond prices and falling yields are signs investors are seeking safe havens. All of that is an indication that the economy is slowing globally and it’s giving investors cause for concern.
It was just recently that stronger than expected economic data was viewed by markets as a negative. Investors wanted their cake and to eat it too. Climbing stock prices on the back of optimism over AI were one half of the equation. The other half was the idea interest rates would soon come down so long as reports on the economy weren’t too heated. However, interest rates do not tend to come down unless economic data is weakening and weakening economic data tends to not bode well for stock prices. As a result, it feels like there’s been a bit of a change in sentiment as possible rate cuts are being viewed as an indication of a slowing economy.
For today, I’m very closely watching how markets ultimately interpret today’s jobs number. As I mentioned above, while the overall pace of new jobs has slowed, the places where we’re seeing hiring are where you want to see them. I’m also continuing to watch volatility. The VIX, after hitting an intraday low of under 11 last month, is now above 21. For options traders, that means premium is getting expensive and could make for interesting opportunities. If you’re a stock owner, it means things may be a bit uncomfortable at the moment; however, there may also be opportunities to buy stocks whose valuations have come down of late. As always, I would stick with your investing plans and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
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