The recent selloff in stocks has shaken the market as concerns about the Federal Reserve’s pace of interest rate cuts have intensified. Apart from this, a significant plunge in key technology companies has further fueled the ongoing equity-market rout.
Investors are eagerly awaiting Friday’s monthly jobs report, which is expected to reveal a slowdown in the rate at which US employers added workers last month. While Fed Chair Jerome Powell has hinted at upcoming rate cuts in September, some investors argue that the Fed should expedite the process in order to prevent a deeper economic downturn. The weak data released on Thursday has only added to the calls for swifter action.
The looming jobs report is likely to intensify the debate, especially given the precarious unemployment situation. Former Fed economist Claudia Sahm’s “Sahm rule,” which has a perfect track record of predicting recessions over the last 50 years, is on the brink of being triggered.
With concerns mounting, market experts like Daniela Hathorn at Capital.com and Krishna Guha at Evercore are expressing fears that the Fed may be lagging behind market expectations, potentially risking a soft landing.
The impact of these uncertainties is evident in the market movements. S&P 500 contracts have fallen by 1.2%, while Nasdaq 100 futures took a hit of 1.8%. The Stoxx Europe 600 similarly slid by 1.8%, and Japan’s Topix index recorded its biggest two-day decline since 2011. Notably, major tech giants like Intel Corp. and Amazon.com Inc. have experienced substantial losses as well.
Amidst the stock market turmoil, Treasuries have seen a seven-day rally, leading traders to anticipate a series of quarter-point cuts by the Fed in September, November, and December. There is even speculation about the possibility of a 50 basis point reduction in one of these instances.
The upcoming US jobs report is expected to reflect a slowdown in job and wage growth for July, further underscoring the softening labor market. Analysts like Gary Dugan from the Global CIO Office believe that the current economic momentum could necessitate a 50 basis point cut in the Fed’s next meeting to offset the downturn.
Various factors, including lackluster earnings from tech giants like Microsoft and Amazon, concerns about the Chinese economy, and geopolitical tensions in the Middle East, have contributed to the ongoing market volatility.
As the market grapples with these uncertainties, investors are advised to prepare for increased volatility but to refrain from making hasty decisions based on short-term shifts in sentiment. Mark Hafele, Chief Investment Officer at UBS Global Wealth Management, encourages a measured approach amidst the turbulent market conditions. Stay tuned to Extreme Investor Network for further updates on the evolving market scenario.