September 4, 2024

If one looked at some old-time consumer staples stocks such as KO,JNJ, PG, UNH and V in the Dow plus some other old-timers like PEP, KMB and CL, one would have thought that one of the worst days recently was a good one, and that we were back in 1977.  

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But unfortunately, huge selling in technology, especially for chip stocks, sunk the market to its worst loss since the early August selloff before its recent three-week winning streak took the S&P almost to a new high last week.  

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But instead one got an awful selling spree that just kept going lower and lower right to the end with the Dow plunging by 626 down to 40,936 after it had made four new record highs last week. It was hurt in this process by big decline in BA, CAT, GS and MSFT.  

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The S&P was a complete downside disaster with a huge 119 points lower to 5529 hurt by one of the worst days for technology in a long time, plus weakness in the financial sector as well. U.S. stocks tumbled Tuesday to their worst day since an early August sell-off, as a week full of updates on the economy got off to a discouragingly weak start.  

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The Nasdaq was an absolute disaster with a 377 point downside shellacking due to the awful technology showing to 17,136 while the Russell 2000 Index of small stocks just came along for the downside ride with a weak 68 point loss to 2149 as the small banks really took it on the chin.  

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And naturally the VIX had an upside field day with a large gain to 20.72 and this level can hopefully provide some upside resistance which hopefully will result in the some steadying in equities.  

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Treasury yields also stumbled in the bond market after a report showed U.S. manufacturing shrank again in August, sputtering under the weight of high interest rates. Manufacturing has been contracting for most of the past two years, and its performance for August was worse than economists expected.  

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Demand continues to remain subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and election uncertainty, said one bond analyst.  

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Stocks of oil and gas companies were some of the market’s biggest losers after the price of crude oil fell roughly 4% on concerns about how much fuel a fragile global economy will burn. A barrel of benchmark U.S. oil is almost back to $70 and down for the year after climbing above $85 in April.  

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Similar worries about a slowing U.S. economy and a possible recession had helped send stocks on a scary summertime swoon in early August. It briefly knocked the S&P nearly 10% below its record set in July, but financial markets quickly rebounded on hopes that the Federal Reserve could pull off a soft landing for the economy.  

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The Fed appears set to lower interest rates later this month in hopes of easing conditions for the economy and avoiding a recession after earlier pushing its main interest rate to a two-decade high to beat high inflation.  

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This Friday’s jobs report has once again become the main event for the stock market each month, taking over from updates on inflation. Many traders are anticipating the Fed will deliver a full percentage point of cuts to interest rates this year, which is a “recession-sized” amount.  

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The strength of this jobs report, or lack thereof, will likely determine the size of the Fed’s upcoming cut, If Friday’s data shows an improvement in hiring over July’s disappointing report, it could keep the Fed on course for a traditional-sized move of a quarter of a percentage point.  

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But if Friday’s report is weaker, it could drive the Fed to deliver an outsized cut of half a percentage point from the federal funds rate’s current range of 5.25% to 5.50%. While cuts to rates are generally boons to investment prices, a recession could more than wipe out that benefit by dragging down corporate profits.  

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U.S. Steel fell 6% in its first trading after Vice President Kamala Harris said Monday that she opposed the company’s planned sale to Japan’s Nippon Steel. The Democratic presidential nominee’s comments, which echo President Joe Biden’s position, came after Nippon Steel Corp. said last week it would spend an additional $1.3 billion to upgrade facilities in Pennsylvania and Indiana, on top of a previous $1.4 billion commitment.  

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Nippon Steel also re-iterated that it expects the transaction to close by the end of this year, despite ongoing political and labor opposition.  

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It was not a complete washout, as nearly 30% of the stocks within the S&P climbed, led by those that tend to benefit the most from lower interest rates. That includes dividend-paying stocks, as well as companies whose profits are less closely tied to the ebbs and flows of the economy, such as real-estate stocks and consumer staples, as mentioned above.  

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In the bond market, the yield on the 10-year Treasury fell to 3.84% from 3.91% late Friday. That is down from 4.70% in late April, a significant move for the bond market.  

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Worries were also growing about the resilience of China’s economy, as recently disclosed date showed a mixed picture. Weak earnings reports from Chinese companies, including property developer and investor New World Development Co., added to the pessimism.  

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Earnings season is quieting down now with the following: today – ZS, PD, ASAN, DLTR, DKS lower while GTLB is higher; Thursday – AVGO, DOCU, LE; Friday – BIG.  

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Economic reports will see: today – August ISM Manufacturing Survey slipped to 46.8, July construction spending slipped by 0.3%; today – July trade deficit was $78.8 billion, July JOLTS job openings survey came in at 7.68 million which was the lowest since January 2021, August factory orders were higher by 5% and Fed Beige Book at 2pm; Friday – the big one, August non-farm payroll survey with estimates of 155,000 and the unemployment rate down to 4.2%.