Market Hit Hard in Anticipation of Economic Data and Potential Fed Rate Cuts

Stocks experienced a sharp decline at the beginning of September, traditionally a challenging month for the market. Investors are bracing for upcoming economic data that could influence the Federal Reserve’s decisions on rate cuts. The S&P 500 had its worst slump since early August, driven by a sell-off in technology stocks, including a notable drop in Nvidia Corp., and a decline in energy shares as oil prices fell. Meanwhile, bond prices rose as traders shifted to safer assets.

Stocks and Oil down

S&P 500 Sees Biggest Slide Since August Meltdown: Markets Wrap

US manufacturing activity contracts for a fifth straight monthhttps://t.co/IYDmlAz1oD

— Yiannis Patrikakis (@patrikakis) September 3, 2024

According to Bank of America, a contrarian sentiment gauge hit its highest level in over two years, nearing a “sell” signal for U.S. stocks. Historically, September has been the S&P 500’s weakest month since 1950. Sam Stovall of CFRA noted that while August and September usually see declines, this pattern often shifts to September and October during election years.

JPMorgan strategists warned that even if the Fed begins cutting rates, any market rally might stall near record highs. They believe any rate reductions would be in response to a slowing economy, implying a “reactive” rather than a proactive easing of monetary policy.

Morgan Stanley’s strategist Michael Wilson suggested that stocks that have lagged in recent rallies could benefit if Friday’s jobs report shows stronger-than-expected payrolls, indicating a resilient economy. A positive jobs report could boost investor confidence, suggesting that economic growth risks have subsided.

Key market indices saw significant declines, with the S&P 500 down 1.4%, the Nasdaq 100 falling 2.2%, the Dow Jones Industrial Average dropping 1%, and the Russell 2000 losing 2%. Nvidia fell 7.7%, and Boeing Co. dropped 7.6% following an analyst downgrade. The volatility index, VIX, spiked to 18.

U.S. Treasury yields fell, and a record number of blue-chip companies moved into the corporate bond market, capitalizing on lower borrowing costs ahead of the presidential election. The yen strengthened after Bank of Japan Governor Kazuo Ueda reiterated plans to raise rates if economic conditions warrant.

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U.S. manufacturing activity continued to decline in August, marking the fifth consecutive month of contraction. The market is now focused on the upcoming jobs report, with economists expecting an increase of about 165,000 jobs in August. While this is higher than July’s 114,000 gain, it would still represent the slowest three-month average payroll growth since early 2021.

The jobs report is expected to be a crucial factor in determining the Federal Reserve’s approach to rate cuts. Traders currently anticipate a full percentage point reduction by the end of the year, with a possibility of a more significant cut if the jobs data is weaker than expected. This rate cut would mark the steepest reduction outside of a recession since the 1980s.

Key Points:

• Market Downturn: Stocks fell sharply at the start of September, with major indices like the S&P 500 and Nasdaq 100 experiencing significant declines.
• Investor Caution: Investors are awaiting key economic data that could impact the Federal Reserve’s decision on rate cuts, with speculation about possible aggressive monetary easing.
• Technology and Energy Losses: Tech stocks, particularly Nvidia, and energy shares saw substantial losses, contributing to the market downturn.
• Upcoming Jobs Report: The August jobs report is crucial, as it could influence the Fed’s rate cut decision; a strong report may indicate a resilient economy.
• Corporate Movements: Major corporate developments included Boeing’s downgrade, a legal ruling on Illumina’s acquisition, and Cathay Pacific’s aircraft inspections.

Fallon Jacobson – Reprinted with permission of Whatfinger News