The stock market saw significant declines in the final session of the week, driven by growth concerns. Disappointing economic data indicated a deeper economic slowdown while the Federal Reserve remains on pause.
Key economic data:
- Nonfarm payrolls increased by 114,000 (consensus 170,000)
- Unemployment rate rose to 4.3% from 4.1%
- Average hourly earnings decelerated to 3.6% year-over-year from 3.8%
A softer labor market could lead to lower spending, impacting earnings growth.
Growth concerns also lowered Treasury yields and increased rate cut expectations:
- 10-year note yield fell 18 basis points to 3.79%
- 2-year note yield dropped 29 basis points to 3.87%
The CME Fed Watch Tool now shows a 71.5% probability of a 50-basis point rate cut at the September FOMC meeting, up from 22.0% a day ago.
Negative earnings news also contributed to the stock market's decline. Dow components Amazon.com (AMZN) and Intel (INTC, Financial) were notable laggards:
- AMZN fell to 167.90, down 8.8%, reacting to weaker-than-expected Q3 revenue guidance.
- INTC plummeted to 21.48, down 26.1%, due to disappointing Q2 earnings, Q3 guidance, and news of suspending its dividend and cutting over 15% of its workforce.
Apple (AAPL, Financial), another Dow component and the largest stock in the S&P 500, bucked the trend, rising 0.7% to 219.86 after reporting better-than-expected earnings and revenue.
Almost all sectors participated in the broad retreat, with seven S&P 500 sectors declining at least 1.9%. The advance-decline line favored decliners by a 3-to-1 margin at the NYSE.
Year-to-date performance:
- S&P 500: +12.1%
- Nasdaq Composite: +11.8%
- S&P Midcap 400: +6.0%
- Dow Jones Industrial Average: +5.4%
- Russell 2000: +4.1%
Today's economic data review:
- July Nonfarm Payrolls: 114K (consensus 170K); Prior revised to 179K from 206K
- July Nonfarm Private Payrolls: 97K (consensus 153K); Prior 136K
- July Avg. Hourly Earnings: 0.2% (consensus 0.3%); Prior 0.3%
- July Unemployment Rate: 4.3% (consensus 4.1%); Prior 4.1%
- July Average Workweek: 34.2 (consensus 34.3); Prior 34.3
The key takeaway is that the report signals an economic slowdown, raising concerns about a hard landing and the Fed's policy decisions.
June Factory Orders: -3.3% (consensus 0.4%); Prior -0.5%
The weakness in factory orders was driven by transportation equipment orders, which are notoriously volatile.
Looking ahead, Monday's economic data includes:
Guru Stock Picks
Tom Gayner has made the following transactions:
- Add in HGTY by 3.6%
Vanguard Health Care Fund has made the following transactions:
Richard Pzena has made the following transactions:
First Pacific Advisors has made the following transactions:
Yacktman Asset Management has made the following transactions:
Warren Buffett has made the following transactions:
- Reduce in BAC by 2%
Today's News
Hedge fund Elliott Management has voiced concerns that Nvidia (NVDA, Financial) is in a bubble, driven by overhyped AI themes. The hedge fund believes that the massive purchases of Nvidia's graphic processing units may not be sustainable as many AI applications are not yet cost-efficient or reliable. This skepticism has caused some turbulence in the chipmaker's stock.
The U.S. Department of Justice has launched an investigation into Nvidia (NVDA, Financial) following complaints from competitors that the company has abused its market dominance in AI chip sales. The probe aims to determine if Nvidia pressured customers to buy multiple products or threatened those who also purchased from rivals. This investigation could have significant implications for Nvidia's market position.
Intel (INTC, Financial) saw its stock plummet by about 27% on Friday after disappointing Q2 results and a weak outlook for the third quarter. The company also announced layoffs of 15% of its workforce and the suspension of its dividend. These moves have sent shockwaves through the market, significantly affecting other chip stocks and contributing to a broader market selloff.
Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway (BRK.A) (BRK.B) sold another 19.2 million shares of Bank of America (BAC, Financial) for approximately $779 million between July 30 and August 1. This follows earlier sales in mid-July, bringing the total divested to over $3.8 billion. Despite these sales, Buffett remains the largest shareholder of the bank.
Following mixed Q2 results, Block (SQ, Financial) shares rose over 6% as the company raised its full-year outlook, predicting adjusted EBITDA of $2.9 billion. This surpasses previous estimates and signals strong future performance, boosting investor confidence.
Cloudflare (NET, Financial) shares jumped nearly 8% after the company reported positive Q2 results, further solidifying its position in the cloud services market. The upbeat earnings report has led to increased investor optimism.
This week's dividend activity included increased payouts from Clorox (CLX, Financial) and Iron Mountain (IRM, Financial), along with declarations from companies like Coca-Cola (KO, Financial) and IBM (IBM, Financial). Additionally, Ford (F, Financial) and MetLife (MET, Financial) will see ex-dividend dates for their upcoming payments next week.
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