Economic Worries, Disappointing Earnings May Lead To Extended Sell-Off

The major U.S. index futures are currently pointing to a sharply lower open on Friday, with stocks likely to extend the sell-off seen over the course of the previous session.

Concerns about the outlook for the U.S. economy may continue to weigh on Wall Street following the release of a closely watched Labor Department report showing employment increased by much less than expected in the month of July.

The report said non-farm payroll employment climbed by 114,000 jobs in July after jumping by a downwardly revised 179,000 jobs in June.

Economists had expected employment to rise by 175,000 jobs compared to the surge of 206,000 jobs originally reported for the previous month.

The Labor Department also said the unemployment rate rose to 4.3 percent in July from 4.1 percent in June. Economists had expected the unemployment rate to remain unchanged.

With the unexpected increase, the unemployment rate reached its highest level since hitting 4.5 percent in October 2021.

While weaker than expected economic data has recently been a positive for the markets amid expectations it would convince the Federal Reserve to lower interest rates, traders now seem concerned the Fed has waited too long and could lead the U.S. into a recession.

Negative sentiment has also been generated in reaction to the latest earnings news, with shares of Intel (NASDAQ:INTC) plummeting by 24.5 percent in pre-market trading after the semiconductor giant reported weaker than expected second quarter results.

Online retail giant Amazon (NASDAQ:AMZN) is also seeing substantial pre-market weakness after reporting weaker than expected second quarter revenues and providing disappointing guidance for the current quarter.

Shares of Apple (NASDAQ:AAPL) are also moving to the downside in pre-market trading even though the tech giant reported fiscal third quarter results that beat analyst estimates on both the top and bottom lines.

After extending Wednesday’s rally early in the session, stocks moved sharply lower over the coursed the trading day on Thursday. The major averages all showed substantial moves to the downside.

The tech-heavy Nasdaq plunged 405.25 points or 2.3 percent to 17,194.15, the S&P 500 tumbled 75.62 points or 1.4 percent to 5,446.68 and the Dow slumped 494.82 points or 1,2 percent to 40,347,97.

The sell-off on Wall Street came as some disappointing data led to concerns about the outlook for the U.S. economy, offsetting optimism about a near-term interest rate cut by Federal Reserve.

The Institute for Supply Management released a report showing U.S. manufacturing activity unexpectedly contracted at an accelerated rate in the month of July.

The ISM said its manufacturing PMI fell to 46.8 in July from 48.5 in June, with a reading below 50 indicating contraction. Economists had expected the index to inch up to 48.8 percent.

With the bigger than expected decrease, the manufacturing PMI dropped to its lowest level since hitting 46.6 in November 2023.

“Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and other conditions,” said Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee.

He added, “Production execution was down compared to June, likely adding to revenue declines, putting additional pressure on profitability.”

The Labor Department also released a report showing first-time claims for U.S. unemployment benefits rose to their highest level in almost a year in the week ended July 27th.

The report said initial jobless claims climbed to 249,000, an increase of 14,000 from the previous week’s unrevised level of 235,000. Economists had expected jobless claims to inch up to 236,000.

With the bigger than expected increase, jobless claims reached their highest level since hitting 258,000 in the week ended August 5, 2023.

Early in the session, stocks benefited from a positive reaction to upbeat earnings news from Facebook parent Meta Platforms (NASDAQ:META).

Semiconductor stocks saw a substantial pullback following the rally seen in the previous session, with the Philadelphia Semiconductor Index plunging by 7.1 percent.

Airline stocks also showed a significant move to the downside, dragging the NYSE Arca Airline Index down by 5.6 percent.

Considerable weakness was also visible among oil service stocks, as reflected by the 4.0 percent nosedive by the Philadelphia Oil Service Index.

Steel, computer hardware and networking stocks are also saw notable weakness, while interest rate-sensitive utilities and real estate stocks bucked the downward trend.

Meta Platforms (NASDAQ:META)
Historical Stock Chart
From Oct 2024 to Nov 2024