The S&P 500 Index ($SPX) (SPY) Friday closed down -1.84%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.51%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -2.38%.
US stocks sold off Friday, with the S&P 500 falling to an 8-week low, the Nasdaq 100 dropping to a 2-month low, and the Dow Jones Industrials sliding to a 3-week low. Global equity markets plummeted Friday as this week’s slate of weaker-than-expected US economic news has fueled concerns that the Fed is behind the curve and too slow to cut interest rates. Also, disappointing earnings results from key technology companies weighed on stocks Friday, with Intel closing down more than -26% and Amazon.com closing down more than -8%.
Selling in stocks intensified on weaker-than-expected US economic news. Friday’s monthly US payroll report showed that the number of July nonfarm payrolls rose less than expected, and the unemployment rate unexpectedly rose to a 2-3/4 year high, suggesting that the US labor market is cooling faster than expected. Also, Jun factory orders posted their biggest decline in 4 years, another sign the economy is losing momentum.
On the positive side, Friday’s Fed-friendly US economic reports knocked the 10-year T-note yield down to a 7-month low.
US Jul nonfarm payrolls rose +114,000, weaker than expectations of +175,000, and Jun nonfarm payrolls were revised lower to +179,000 from the previously reported +206,000. The Jul unemployment rate unexpectedly rose +0.2 to a 2-3/4 year high of 4.3%, showing a weaker labor market than expectations of 4.1%.
US Jul average hourly earnings eased to +3.6% y/y from +3.8% y/y in June, weaker than expectations of +3.7% y/y and the slowest pace of increase in 3 years.
US Jun factory orders fell -3.3% m/m, weaker than expectations of -3.2% m/m and the largest decline in 4 years.
Comments Friday from Chicago Fed President Goolsbee dampened speculation the Fed may cut rates by 50 bp when he said the Fed "will not overreact to any one month's economic numbers" and that policymakers will get a lot of data prior to the next FOMC meeting in September.
The market consensus is that Q2 earnings for the S&P 500 companies will rise +9% y/y. About one-third of the companies in the S&P 500 have reported thus far. According to Bloomberg, most reporting companies have beaten their earnings consensus, but only 43% have beaten revenue expectations, the lowest percentage in five years.
The markets are discounting the chances for a -25 bp rate cut at 100% for the September 17-18 FOMC meeting and an 81% chance for a -50 bp rate cut.
Overseas stock markets Friday settled sharply lower. The Euro Stoxx 50 fell to a 6-month low and closed down -2.67%. China's Shanghai Composite closed down -0.92%. Japan's Nikkei Stock 225 fell to a 5-3/4 month low and closed down sharply by -5.81%.
Interest Rates
September 10-year T-notes (ZNU24) Friday settled up sharply by +1-13/32 points. The 10-year T-note yield fell -17.6 bp to 3.800%. Sep T-notes Friday surged to a 14-month nearest-futures high, and the 10-year T-note yield dropped to a 7-month low of 3.787%. Friday’s slump in global equity markets has boosted safe-haven demand for T-notes. Also, this week’s slate of weaker-than-expected US economic news has bolstered the prospects for several Fed rate hikes this year. In addition, a slide in inflation expectations is boosting T-note prices as the 10-year breakeven inflation rate fell to a 3-1/2 year low today at 2.032%.
T-notes raced to their highs Friday after the US July unemployment rate unexpectedly rose to a 2-3/4 year high, and after July average hourly earnings posted their smallest increase in 3 years, dovish factors for Fed policy.
European government bond yields on Friday fell sharply. The 10-year German bund yield dropped to a 6-month low of 2.150% and finished down -7.0 bp at 2.174%. The 10-year UK gilt yield fell to a 6-month low of 3.789% and finished down -5.4 bp at 3.828%.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the September 12 meeting.
US Stock Movers
Intel (INTC) closed down more than -26% to lead losers in the S&P 500, Dow Jones Industrial, and Nasdaq 100 after reporting Q2 revenue of $12.83 billion, below the consensus of $12.95 billion and forecasting Q3 revenue of $12.5 billion-$13.5 billion, well below the consensus of $14.38 billion.
Amazon.com (AMZN) closed down more than -8% after forecasting Q3 operating income of $11.5 billion-$15.0 billion, weaker than the consensus of $15.66 billion.
Atlassian (TEAM) closed down more than -17% after forecasting a Q1 revenue of $1.15 billion-$1.16 billion, below the consensus of $1.16 billion.
Microchip Technology (MCHP) closed down more than -10% after forecasting Q2 net sales of $1.12 billion-$1.18 billion, well below the consensus of $1.33 billion.
Booking Holdings (BKNG) closed down more than -9% after forecasting Q3 revenue will climb by +2% to +4%, weaker than the consensus of +6.9%.
Snap (SNAP) closed down more than -26% after reporting Q2 revenue of $1.24 billion, weaker than the consensus of $1.25 billion, and forecasting Q3 adjusted Ebitda of $70 million-$100 million, below the consensus of $110.5 million.
Lululemon Athletica (LULU) closed down more than -5% after Goldman Sachs downgraded the stock to neutral from buy.
Chevron (CVX) closed down more than -2% after reporting Q2 adjusted EPS of $2.55, weaker than the consensus of $2.93.
Clorox (CLX) closed up more than +7% to lead gainers in the S&P 500 after reporting Q4 adjusted EPS of $1.82, stronger than the consensus of $1.55.
GoDaddy (GDDY) closed up more than +6% after reporting Q2 revenue of $1.12 billion, better than the consensus of $1.11 billion, and raising its full-year revenue forecast to $4.53 billion-$4.57 billion from a previous estimate of $4.50 billion-$4.56 billion.
MercadoLibre (MELI) closed up more than +10% to lead gainers in the Nasdaq 100 after reporting Q2 net revenue of $5.1 billion, stronger than the consensus of $4.67 billion.
DoorDash (DASH) closed up more than +8% after reporting a Q2 marketplace gross order value of $19.71 billion, stronger than the consensus of $19.30 billion and forecasting a Q3 marketplace gross order value of $19.4 billion-$19.8 billion, the midpoint above the consensus of $19.44 billion.
Cloudflare (NET) closed up more than +6% after reporting Q2 revenue of $401.0 million, better than the consensus of $394.8 million, and raising its full-year revenue estimate to $1.66 billion from a previous estimate of $1.65 billion.
Mcdonald's (MCD) closed up more than +2% when it said it recorded an “incremental lift” of nearly 3% in restaurant guest counts after it announced a $5 deal meal promotion in the last week of June.
Camden Property Trust (CPT) closed up more than +2% after reporting Q2 FFO/share of $1.71, stronger than the consensus of $1.67.
Consolidated Edison (ED) closed up more than +1% after reporting Q2 operating revenue of $3.22 billion, better than the consensus of $3.08 billion.
Earnings Reports (8/5/2024)
CSX Corp (CSX), Diamondback Energy Inc (FANG), ONEOK Inc (OKE), Realty Income Corp (O), Simon Property Group Inc (SPG), Tyson Foods Inc (TSN), Williams Cos Inc/The (WMB).
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
