The recent stock market chaos has left investors reeling as they grapple with weaker-than-expected economic data and disappointing earnings reports from major tech companies like Amazon and Intel.
The sell-off began on Thursday and gained momentum as jobless claims rose, manufacturing data fell short of estimates, and Amazon and Intel announced disappointing earnings. The stock market saw all three major US indexes close more than 1.5% lower, with tech and small-caps taking the biggest hit. The Nasdaq Composite even entered correction territory, sliding nearly 5% in just two days.
Investors are now questioning the Federal Reserve’s response to the economic slowdown, as signs of a weakening economy no longer seem to be translating into expectations of rate cuts that boost stock prices. With a rate cut already priced in for September, some are wondering if the Fed may have miscalculated in its approach.
The New York Fed economists are even pricing in a 56% chance of a recession by June next year, while Wall Street rate-cut forecasts have become more dovish, with bets on a 50-basis-point rate reduction in September now at 75%.
This shift in market sentiment is causing concern among investors, who fear that the Fed may be falling behind in its response to a slowing economy. With the possibility of a larger rate cut in September becoming more likely, the market is bracing for further volatility in the coming months.
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