The S&P 500 on Friday notched a three week losing streak for the first time since mid April. The Nasdaq, suffered an even steeper weekly decline and has ended up in correction territory.
A combination of disappointing quarterly reports from members of the “Magnificent 7” club, soft readings on U.S. manufacturing and construction spending and a significantly weak nonfarm payrolls report sparked fears that the Fed had slowed down the economy too much. For the week, the S&P and the Dow both retreated 2.1% each, while the Nasdaq slipped 3.4%.
We were just basking in the glow of a second quarter 2024 GDP growth at 2.8% (accelerating from 1.4% in the first quarter), personal consumption expenditures (the Fed’s preferred inflation measurement) up 2.5% over a year ago and getting closer to the 2% goal, unemployment slowly rising 4.1% and a Fed chairman acknowledging the committee was close to providing our first rate cut in one and a half years.
In one fell swoop, the optimism disappeared when Amazon, Intel and others cautioned on the weakening economy and the Fed stayed put with no change to interest rates as unemployment climbed to 4.3%.
Future Wealth’s View
Just last week, we had stated that the “Economy is slowing” and that the “The rest of the earnings season will determine the direction of the market.” Link to the article is here – https://futurewealthllc.com/
Well, it has not been pretty and has led to a violent Wall Street rotation from Big Tech plunging the Nasdaq 100 Index into correction territory, wiping out more than $2 trillion in value in just over three weeks as traders unwound bets that had been minting money for over a year. Even the sage – Warren Buffett sold a chunk of his positions on Apple and moved to the sidelines holding the proceeds in cash.
The narrative on Wall Street has quickly changed from “The Fed has engineered a soft landing against all odds” to “The Fed is now behind the curve”. If the Fed had cut rates earlier this week, the implications would have been that the economy is weaker than anticipated and of course, the market would have seen a massive sell off. But, with Friday’s PMI (purchasing managers index) data showing that there is indeed economic contraction, the Fed is now caught with its pants down as the next opportunity for an interest rate cut is not till the next Fed meeting in September.
If anyone is interested in Fed Chair Jay Powell’s job, he will gladly take your call.