Market Summary
The S&P 500 index fell by 0.64% on Friday, while the Dow Jones Industrial Average saw a smaller dip of 0.20%. The Nasdaq 100 index experienced a more significant decline of 1.22%. E-mini S&P Futures dropped by 0.68%, and September E-Mini Nasdaq futures fell by 1.31%.
This downturn in the stock market was largely driven by weakness in technology shares. Marvell Technology suffered a notable decline of over 18% after its second-quarter data center revenue fell short of expectations. Dell Technologies also experienced a drop of more than 8%, as its profit margins for AI servers proved to be more problematic than anticipated.
Adding to the negative sentiment, the MNI Chicago PMI for August decreased more than analysts foresaw. The University of Michigan’s consumer sentiment index for August was also unexpectedly revised downward. Inflation continues to be a concern, with the U.S. July Core PCE price index rising the most it has in five months.
On a brighter note, consumer demand in the U.S. appears sturdy; personal spending had its largest increase in four months during July. Additionally, inflation expectations from the University of Michigan were adjusted lower. Supportive comments from Fed officials hinted at potential interest rate cuts, which provided a slight boost to market confidence.
In July, personal spending rose significantly, with personal income increasing by 0.4% month-over-month, aligning with expectations. However, the preferred inflation metric for the Fed, the Core PCE Price Index, rose from 2.8% year-over-year in June to a five-month high of 2.9%.
Specifically, the MNI Chicago PMI fell sharply from 46.0 to 41.5 in August, while the University of Michigan’s consumer sentiment index was revised down from 58.6 to 58.2.
Interestingly, the University of Michigan’s one-year inflation forecast for August unexpectedly dipped from an anticipated upward revision, decreasing slightly from 5.0% to 4.8%. In other news, Fed Governor Christopher Waller expressed support for a 25 basis point rate cut at the upcoming FOMC meeting, emphasizing the need to manage risks in the labor market.
Fed President Mary Daly of San Francisco also hinted at possible rate reductions soon, pointing out that current tariff-related price increases might be temporary and not waiting for full certainty could pose risks.
On the tariff front, President Trump threatened new tariffs on advanced technologies and semiconductors as a counter-measure against digital services taxes imposed by other countries affecting American businesses. Last week, he expanded tariffs on steel and aluminum, covering over 400 consumer items, a move that has already gone into effect.
Additionally, a cease-fire on tariffs with China was extended for another 90 days, while tariffs on U.S. imports from India were doubled in response to Russian oil purchases. Economic analysts note that if these proposed tariffs take effect, tariffs could rise significantly by 15.2% by 2024.
Expectations for a rate cut of 25 basis points in the next FOMC meeting on September 16-17 are currently favored at 88%. There’s also a 55% chance of a second cut in the meeting on October 28-29.
In terms of earnings, S&P 500 revenues for the second quarter climbed by 9.1% year-over-year, significantly outpacing earlier projections. Roughly 82% of firms exceeded profit estimates, with about 95% of companies reporting second-quarter results.
Globally, stock markets showed mixed results on Friday. The Euro Stoxx 50 fell to a two-week low, while China’s Shanghai Composite climbed slightly, and Japan’s Nikkei 225 also experienced a decline.
U.S. Treasury note futures closed lower, with the 10-year note yield rising to 4.227%. The Core PCE Price Index increase this month contributed to the drop in T-notes, along with pressures from Germany’s inflation data.
Eurozone government bond yields went up, with German bund yields increasing by 2.724% and British gilt yields rising as well.
In Germany, the unemployment rate unexpectedly decreased, indicating a stronger labor market than anticipated, while retail sales saw the largest decline in nearly two years.
In stock movers, Marvell Technology led the Nasdaq losers following its disappointing financial results. Dell Technologies also struggled significantly, while several other tech-related stocks faced declines. On the lighter side, Autodesk saw impressive gains of more than 9% after reporting robust second-quarter revenues.
Overall, managed healthcare stocks showed resilience, with Molina Healthcare and UnitedHealth Group among the gainers, contrasting with the broader market struggles.
