On a turbulent Friday, U.S. equity indexes experienced a significant decline as expectations soared for a 50 basis-point cut in interest rates this September. This surge in speculation was largely triggered by a disappointing set of nonfarm payroll data for July, pushing government bond yields downwards sharply.
The Nasdaq Composite Index fell by 2.8%, closing at 16,708.8, primarily driven by a dismal quarterly earnings report from Intel Corporation. This negative news has dampened the enthusiasm of tech investors. Concurrently, the S&P 500 index declined by 2.4%, settling at 5,318.5, while the Dow Jones Industrial Average witnessed a 2.1% drop, ending at 39,489.4.
Among the sectors, only consumer staples showed resilience; however, consumer discretionary and energy sectors saw the steepest declines, signaling broader market weaknesses. Compounding the negative sentiment, the CBOE's Volatility Index (VIX), often referred to as the 'fear gauge', soared by more than 40%, reaching 26.04—marking a new 52-week high.
This surge indicates increased investor anxiety as market volatility escalates. In terms of job market performance, nonfarm payrolls increased by 114,000 last month, per the latest report from the Bureau of Labor Statistics. This figure fell short of the anticipated 175,000 that was forecasted in a Bloomberg survey.
Additionally, previous job gains were revised downwards by 27,000 for June and by 2,000 for May. Following this, the unemployment rate climbed to 4.3%, as expected, up from 4.1% in June. Scott Anderson, Chief U.S. Economist at BMO, commented, "The substantial miss in July's nonfarm payrolls, coupled with the uptick in the unemployment rate, underscores the trends we’ve been observing in U.S.
economic data—aggregate demand is weakening swiftly." Average hourly earnings saw a meager rise of 0.2% sequentially and a 3.6% increase year-on-year, which fell short of Wall Street expectations for a 0.3% increase and a 3.7% year-over-year rise, respectively. In the bond markets, Treasury yields experienced a steep decline, with the 10-year note falling by 16.3 basis points to 3.81% and the two-year yield plunging 25 basis points to 3.91%.
This significant pullback in yields reflects growing concern over deteriorating economic conditions. Macquarie analysts noted, "The upcoming data will heavily influence the trajectory of monetary policy, but the visible softening in the labor market raises the likelihood that the Federal Reserve will implement rate cuts in subsequent meetings as we approach year-end." By Friday afternoon, the CME Group's FedWatch Tool indicated that the likelihood of a 50 basis-point rate cut had surged to 76%, a sharp increase from just 22% the day before.
Amidst the corporate updates, Intel Corporation ($INTC) suffered a staggering 27% decline in its share price during intraday trading, marking it as the worst performer on the S&P 500, Nasdaq, and Dow indexes. This drop followed the company's announcement of a fall in Q2 earnings and sales, alongside plans to halt dividends beginning in Q4 and to implement an extensive $10 billion cost-cutting initiative, including significant workforce reductions.
In a similar vein, Amazon.com Inc. ($AMZN) faced headwinds, with its stock down 10% intraday, as its recently reported quarterly sales failed to meet analyst expectations, prompting several brokerages to lower their price targets for the company. Conversely, Apple Inc. ($AAPL) surprised the market with better-than-expected fiscal Q3 results, which were bolstered by sales gains in iPads and Macs that offset declines in the flagship iPhone segment.
Apple shares climbed nearly 3% intraday, positioning it among the top gainers on both the Dow and Nasdaq. Overall, the technology sector took a hit, dropping by 2.4% intraday, as only two out of the mega-cap companies, which are characterized by market capitalizations exceeding $200 billion, managed to trade positively.
In terms of commodities, West Texas Intermediate crude oil prices decreased by 4%, reaching $73.24 per barrel—the lowest level observed since early June. Meanwhile, gold prices fell by 0.4% to $2,470.82 an ounce and silver prices dipped by 0.3% to $28.39. In summary, the market downturn reflects a complicated economic landscape, heightened by disappointing data and significant corporate challenges..