The stock market experienced a downturn on Thursday as investors awaited a highly anticipated speech by Federal Reserve Chair Jerome Powell on Friday. The S&P 500 fell 0.9%, marking its worst day following a two-week rally. The Dow Jones Industrial Average dropped 177 points, or 0.4%, while the Nasdaq composite sank 1.7%. This decline was attributed to rising Treasury yields and mixed data on the U.S. economy, which has been impacted by high interest rates aimed at controlling inflation.
One report indicated that more U.S. workers applied for unemployment benefits last week than expected, signaling a potential cooling job market. Another report highlighted the contrasting performance of the U.S. business sector, with services businesses experiencing growth while the manufacturing sector showed signs of contraction. Overall, the data suggested that the U.S. economy is still growing but with some fragility.
The Federal Reserve has raised interest rates to their highest level in over two decades in an effort to curb inflation without causing a recession. With inflation slowing, there is widespread anticipation for the Fed to cut interest rates at its next meeting in September, which would be the first easing since the COVID crash of 2020. Powell’s speech at the economic symposium in Jackson Hole, Wyoming, is expected to provide insights into the Fed’s future rate-cutting plans.
However, there is a concern that investor expectations for rate cuts may be excessive, potentially leading to an overcorrection in Treasury yields. Despite these uncertainties, U.S. companies have been reporting better-than-expected profits, with companies like Peloton and Zoom Video Communications seeing significant stock price increases following positive earnings reports.
On the flip side, some companies experienced stock price declines, such as Nvidia and Snowflake, despite surpassing profit and revenue expectations. Advance Auto Parts also saw a significant drop in its stock price after falling short of Wall Street’s profit forecasts.
Overall, the S&P 500, Dow Jones Industrial Average, and Nasdaq all ended the day in negative territory. In the bond market, the yield on the 10-year Treasury rose, reflecting the uncertainty in the market. Internationally, stock markets in Asia and Europe saw mostly modest movements, with Hong Kong’s Hang Seng index being a notable outlier with a 1.4% jump.
As investors await Powell’s speech and monitor economic indicators, the stock market remains volatile with both positive and negative developments impacting various sectors. The outcome of the Fed’s future rate-cutting decisions and the overall economic outlook will continue to influence market trends in the coming weeks.