S&P 500 and Nasdaq Turned Lower and Halted 8-day Rally

Alexander Garcia
20 Aug, 2024
Miami

Benchmark indexes on Wall Street traded down and halted an eight-day rally as investors kept alive rate-cut hopes next month. 

The S&P 500 index and the Nasdaq Composite index fell amid receding fears of an economic slowdown and halted their gains after the eighth session in a row. 

Earlier in the month, benchmark indexes plunged as much as 10% amid worries of an economic slowdown after non-farm payrolls and weekly jobless claims were sharply lower than estimated. 

However, those worries were set aside in the following two weeks after retail sales and jobless claims were ahead of market expectations, and softer inflation reports also confirmed that the current economic expansion with low inflation is intact. 

Investors bid up stocks in the hopes that the Federal Reserve is ready to start its rate-cutting cycle after the end of the policy meeting on September 19. 

However, those high hopes of a rate cut may face hurdles, and the Fed's policymakers may wait a little longer before inflation is on a downward trajectory towards the 2% level. 

Despite eleven rate hikes over 2022 and 2023, prices are still rising from a higher base, and inflation has stalled at 3%.

Moreover, the Fed is fighting for its credibility after letting the first rise in inflation be transitory and then reversing its course after inflation soared to close to 9%. 

In addition, the Federal Reserve has no tools to bring down high prices that have seeped deep into the economy. 

Over the last three years, home prices have jumped more than 50%, vehicle prices are up at least 30%, food prices have risen at least 50%, and most service costs have jumped more than 40%. 

The Fed's repeated signaling of its inflation target rate of 2% may not be achieved for months to come because prices of services are still rising and wages are growing between 4% and 5%, inconsistent with the Fed's goals. 

Inflation may hover near 3%, but most consumers are feeling the shock of the higher cost of living, and most families are struggling to pay bills. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index decreased 0.3% to 5,593.20, the Nasdaq Composite fell 0.4% to 17,798.49, and the Russell 2000 index fell 1.3% to 2,139.28. 

The yield on 2-year Treasury notes edged lower to 4.05%, 10-year Treasury notes decreased to 3.86%, and 30-year Treasury bonds inched higher to 4.12%.

WTI crude oil decreased $0.45 to $73.20 a barrel, and natural gas prices edged up 4 cents to $2.18 a thermal unit.

Gold advanced by $8.18 to $2,511.76 an ounce, and silver increased by $0.05 to $29.46.

The dollar index, which weighs the US currency against a basket of foreign currencies, edged lower to 101.49.

 

U.S. Stock Movers

Palo Alto Networks soared 1.9% to $350.0, and the cyber security company reported better-than-expected quarterly results and raised its stock repurchase size by $500 million. 

The company guided fiscal first quarter earnings per share between $1.47 and $1.49 and revenue between $2.1 billion and $2.13 billion. 

Lowe's Companies declined 1.1% to $240.50, and the home improvement retailer reported mixed quarterly results. 

In the fiscal second quarter, the specialty retailer earned $4.10 a share, beating the estimate of as low as $3.99, and revenue was $23.59 billion, slightly lower than the estimate of $23.85 billion.

The company also lowered its annual outlook, citing softening demand growth after three years of strong growth. 

Paramount Global Class A decreased 1.6% to $22.90 after reports that Edgar Bronfman Jr. proposed to acquire National Amusement, which owns a controlling stake in the media company. 

The new proposal comes a month after Paramount and Skydance Media and their group of investors agreed to buy the company. 

Hawaiian Holdings soared 11.5% to $17.70 and Alaska Air Group gained 1.4% to $35.55 after the U.S. Justice Department approved the $1.9 billion merger of two airlines. 

The two companies are now seeking merger approval from the U.S. Transportation Department. 

 

European Markets Extend Recent Rally

European markets extended gains for the sixth session in a row and erased losses incurred earlier in the month brought by a sharp global market selloff. 

Benchmark indexes in London, Paris, and Frankfurt traded around the flatline amid growing expectations that the European Central Bank and the Federal Reserve are more likely to lower rates to keep current economic expansion intact. 

Euro Area consumer price inflation was 2.6% in July, Eurostat confirmed on Tuesday. 

 

Sweden Lowers Rates by 25 Basis Points 

Riksbank lowered its policy rate by 25 basis points to 3.5% after the policy meeting today, and the central bank held out for two to three additional rate cuts in the year as long as inflation stays on the current trajectory. 

Policymakers also said that the economic growth outlook is weaker than expected in June, supporting the case for a rate reduction. 

The central bank lowered its key lending rate for the second time in a row after rates were revised to 4.0%, a high not seen since October 2008. 

 

Swiss Trade Deficit Shrank After Exports Fell In July

The Swiss international trade surplus shrank in July after exports fell and imports rose from the previous month, the Federal Office for Customs and Border Security reported Tuesday. 

Seasonally adjusted exports decreased 2.7% to CHF 22.46 billion and imports advanced 0.3% to CHF 18.36 billion, resulting in a trade surplus of CHF 4.10 billion compared to CHF 4.90 billion in the previous month. 

Weaknesses in chemical and pharmaceutical products accounted for 90% of the decline in exports, according to the customs agency. 

Swiss watch exports increased 1.6% from a year ago to CHF 2.2 billion, or $2.6 billion, according to the Federation of the Swiss Watch Industry. 

The number of unis shipped in the month remained nearly unchanged, at 1.4 million watches. 

 

Europe Indexes and Yields

The DAX index decreased by 0.4% to 18,357.52; the CAC-40 index fell by 0.2% to 7,485.03; and the FTSE 100 index decreased by 1.0% to 8,273.32. 

The yield on 10-year German bonds edged higher to 2.24%, French bonds inched up to 2.97%, the UK gilts edged higher to 3.94%, and Italian bonds inched up to 3.62%.

The euro edged down to $1.101; the British pound inched higher to $1.30; and the U.S. dollar weakened to 85.95 Swiss cents.

Brent crude decreased $0.28 to $77.37 a barrel, and the Dutch TTF natural gas fell by €1.20 to €38.22 per MWh.

 

Europe Stock Movers

Semiconductor equipment stocks traded higher after AMD announced its plans on Monday to acquire ZT Systems for $4.9 billion. 

ASML Holding jumped 2% to €846.20, and BE Semiconductor soared 1.5% to €123.85. 

Jyske Bank decreased 0.1% to DKK 534.0 after the Danish bank reported an increase in profit in the first half and estimated annual profit to be near the upper end of the range for 2024. 

Net income increased 5% to DKK 2.6 billion, driven by higher net interest income and improvements in capital market activities. 

The company also confirmed it launched its DKK 1.5 billion stock repurchase program during the period. 

Nordex SE advanced 0.8% to €13.96, and the wind turbine maker received orders for five turbines totaling 102 MW from Akfen Renewable Energy in Turkey. 

Energy explorers declined after crude oil prices fell to a two-week low amid China demand growth worries and elevated tensions in the Middle East. 

BP Plc declined 1.8% to 433.96 pence, Shell PLC dropped 1.7% to 2,766.0 pence, and TotalEnergies eased 0.8% to €62.40. 

Antofagasta increased 0.2% to 1,883.50 pence after the UK-based mining company reported a slight decline in pre-tax profit in the first half from the previous year. 

 

 

Stocks In Japan Swing Higher Tracking Gains On Wall Street 

Stock market indexes in Tokyo rebounded from the losses in the previous session, tracking gains in tech stocks in overnight trading in New York. 

The Nikkei 225 stock average jumped 1.8%, and the broader Topix index gained 1.2%. 

Market gains were supported by the slight weakness in the Japanese yen, but uncertainty loomed that the stronger yen could lead to unwinding of yen carry trade. 

The yen traded at 147.21 against the U.S. dollar, and the currency held steady for the third session in a row after soaring earlier in the month to a high not seen since January. 

Investors also looked forward to the release of inflation data on Friday, and economists anticipate overall consumer inflation and core inflation to stay above 2.5%. 

Gold in international trading stayed above $2.500 an ounce amid rising demand from Chinese retail buyers as investors shift investment away from residential property to precious metals. 

Moreover, the People's Bank of China is expected to continue diversifying its foreign exchange reserves away from the U.S. government bonds to precious metals, including gold. 

Brent crude oil prices traded down 2% to $77 a barrel in the hopes that a wider conflict between Iran and Israel could be avoided as diplomats worked to prevent Middle East conflict from escalating. 

Moreover, prices were under pressure on the worries of demand growth in China amid a protracted residential property market slump and weak consumer confidence. 

As widely anticipated, the People's Bank of China held steady its one-year loan prime rate at 3.35% and five-year loan prime rate at 3.85%, after cutting rates in the last month. 

 

Japan Stock Movers 

The Nikkei 225 stock average advanced 1.8% to 38,062.92, and the Topix index rose 1.2% to 2,672.10. 

Tech stocks led the gainers in Tokyo, tracking gains in overnight trading on Wall Street. 

Softbank, Advantest, Tokyo Electron, Lasertec, and Disco Corp. advanced between 2% and 3%. 

Mitsubishi UFJ Financial, Sumitomo Mitsui Financial, and Mizuho Financial edged down between 0.1% and 0.4%. 

Toyota Motor jumped 1% to ¥2,687.0, Honda Motor added 0.7% to ¥1,578.0, and Nissan Motor gained 2.5% to ¥447.80. 

Canon Inc. gained 2.6% to ¥4,828.0, Panasonic Holdings Corp. added 1.4% to ¥1,159.50, and Mitsubishi Electric Corp. increased 1% to ¥2,390.0. 

Marubeni Corp. advanced 0.4% to ¥2,480.0, Itochu Corp. increased 0.4% to ¥7,169.0, and Mitsubishi Corp. declined 0.03% to ¥3,024.0. 

 

 

PBoC Holds Rates Steady; Weak Tech Stocks Drag Stock Indexes Lower 

Market indexes in Shanghai and Hong Kong edged lower, and the central bank held steady two key lending rates. 

The Hang Seng index declined 0.4% and the mainland-focused CSI 300 index dropped 0.9%. 

The People's Bank of China held steady 1-year loan prime rate at 3.35% and the 5-year loan prime rate at 3.85%. 

The one-year loan rate is used as a reference rate for new and outstanding loans, and the five-year loan rate is seen as a benchmark for mortgage loans. 

Market sentiment was weak as investors debated the future U.S. rate path because Hong Kong rates are tied to the U.S. rates to keep the currency peg. 

Investors have been cautious after a batch of mixed economic reports last week, after new home prices declined for the 13th month in a row in July and fell at the fastest pace in several years. 

Moreover, the property market shows little signs of stabilizing, and local government announcements to support the completion of unfinished projects did little to arrest price declines or increase property transactions. 

 

China Stock Movers 

The Hang Seng index decreased 0.4% to 17,503.90 and the CSI 300 index dropped 0.9% to 3,327.35. 

Kaisa Group Holdings dropped 4.5% to HK $0.10 after the company urged lenders to accept its restructuring plan and avoid bankruptcy. 

Tech stocks traded down in Hong Kong amid ongoing worries of earnings growth, despite JD.com reporting a near doubling of earnings in the second quarter. 

JD.com decreased 0.3% to HK $112.10, Alibaba Group fell 1.5% to HK $80.20, Baidu added 0.7% to HK $86.45, and Haier Smart Home dropped 4.5% to HK $22.50. 

Li Auto added 1.2% to HK $81.60, Xpeng fell 2% to HK $27.55, and BYD added 0.02% to HK 235.47. 

TYK Medicines jumped 8% to HK $13.05, and the biopharmaceutical company completed its initial public offering at HK $12 per share and raised HK $579 million.