Nasdaq falls into correction zone after jobs report

Stocks fell sharply at the beginning of August, with the tech-heavy Nasdaq composite index entering correction territory, dragged down by economic concerns and disappointing earnings from some leading companies. This marked the first time since early August that stocks went into risk-off mode following a weak jobs report.

This disappointing monthly jobs report and a soft manufacturing reading have caused the market to reconsider speculation on a steady economic picture as the Federal Reserve prepares to begin cutting interest rates. To brighten the picture, the economy will need to show some improvement in the coming weeks.

Nasdaq in correction as S&P 500, Dow drop, and bond yields fall

The Nasdaq 100 has now fallen more than 10% from its high last month, exceeding the threshold commonly used to define a market correction. The S&P 500 dropped 1.8%. The Dow dropped 611 points, or 1.5%. The Russell 2000 was notably impacted after a strong performance in July.

In the bond market, the yield on the 2-year Treasury note fell to 3.87%, the lowest since May 4, 2023, and the 10-year yield dropped to 3.795%, its lowest since March 6, 2020. Although tech stocks had previously benefited from falling yields, recent movements were driven by expectations of future rate cuts.

Fed-funds futures now anticipate a 73.5% chance of a 50-basis point interest rate cut in September, according to the CME FedWatch Tool. That would indicate that the Fed is more concerned about the economy than in recent months.

Nasdaq and Wall Street slide in tough week for tech stocks

The sell-off is the second day in a row of significant declines, establishing a difficult week for Wall Street. Just weeks ago, the Nasdaq, S&P 500 and the Dow Jones Industrial Average, reached all-time highs as a tech-led rally appeared to be expanding.

The disappointment arrived in the form of a double hit of poor financial results and unexpectedly weak economic data.

The Labor Department reported Friday that the unemployment rate rose to 4.3% in July, and employers added 114,000 jobs, a weaker performance than expected. A day earlier, the government reported that the number of Americans seeking first-time unemployment benefits had increased, and a closely watched manufacturing sector indicator also raised concerns.

Worries about the economy have fuelled speculation that a recent rally in tech stocks went too far, with some investors hedging their positions. Although the Nasdaq remains up 20% from a year ago, some of the blue-chip tech stocks that propelled the market to new heights are now showing signs of trouble.

Intel, the chip manufacturer, announced that it will lay off 15% of its workforce as part of a broad cost-cutting campaign. The company’s stock fell 26% after it reported a $1.6 billion net loss for the quarter.

Amazon’s stock fell nearly 9%, as executives blamed “cautious consumers” for the company’s relatively low sales figures. Even Nvidia and Microsoft, which have been described as the darlings of the stock market’s AI-driven rally, are down about 12.5% and 11%, respectively, over the last month.

Still, several analysts predicted that the stock market downturn would be brief.

Michael Farr of the D.C.-based investment firm Farr, Miller and Washington noted that, while the Nasdaq index and the broader tech sector are currently in correction, they have outperformed analysts’ expectations all year and are due for a pullback.

Dan Ives, a Wedbush analyst who has been bullish on artificial intelligence, described the sell-off as a “white-knuckle moment” for tech stocks, but not a sign of long-term problems.

Nasdaq 100 slumps as tech giants miss earnings targets

Investors are shifting away from large technology stocks, which were market pillars earlier this year. The Nasdaq 100’s drop crossed the threshold frequently employed to define a market correction.

Despite the downturn, the index has maintained a roughly 10% gain since the beginning of the year.

The recent collapse has been exacerbated by poor quarterly earnings reports from major technology companies like Amazon (NASDAQ: AMZN) and Intel (NASDAQ:INTC). These findings have contributed to growing investor concern, as has the fact that the anticipated financial increase from AI technology has failed to appear.

Furthermore, other major tech companies, such as Alphabet (NASDAQ: GOOGL) and Tesla (NASDAQ:TSLA), have reported earnings that fell short of expectations earlier in the earnings season. The Nasdaq 100 fell 3.7% on July 24, its biggest single-day loss since October of the previous year.

In contrast to the broader trend, some technology companies, such as Meta Platforms (NASDAQ:META), have reported strong earnings.

Nonetheless, the overall tone of the earnings season has not been sufficient to allay investor worries regarding the growth potential of AI and other key technology segments.

Concerns over slow job growth shift investor focus to bonds

Shares are falling around the world, as traders fear that the US economy will slow sharply following worse-than-expected job data last week. The fear is that any interest rate cuts by the Federal Reserve will come too late to stimulate growth. Early in August, Japan’s Nikkei index fell to its lowest level since 1987.

Concerns about a slowing US economy are at the forefront of investors’ minds, especially after data revealed that job growth slowed dramatically in July. Many investors are now concerned that the Federal Reserve has moved too slowly and will have to play catch-up in terms of rate cuts after its September meeting.

Investors all over the world rushed to the safety of the bond market. The 10-year US Treasury yield recently traded around 3.76%, down from over 4.1% a week earlier and on track to reach its lowest level in more than a year.

Exención de responsabilidad: Esta información no debe considerarse asesoramiento o recomendación sobre inversiones, sino una comunicación de marketing. IronFX no se hace responsable de datos o información de terceros en esta comunicación, ya sea por referencia o enlace.