Economic Worries, Disappointing Earnings May Lead To Extended Sell-Off

The major U.S. index futures are currently pointing to a sharply lower open on Friday, with stocks likely to extend the sell-off seen over the course of the previous session.

Concerns about the outlook for the U.S. economy may continue to weigh on Wall Street following the release of a closely watched Labor Department report showing employment increased by much less than expected in the month of July.

The report said non-farm payroll employment climbed by 114,000 jobs in July after jumping by a downwardly revised 179,000 jobs in June.

Economists had expected employment to rise by 175,000 jobs compared to the surge of 206,000 jobs originally reported for the previous month.

The Labor Department also said the unemployment rate rose to 4.3 percent in July from 4.1 percent in June. Economists had expected the unemployment rate to remain unchanged.

With the unexpected increase, the unemployment rate reached its highest level since hitting 4.5 percent in October 2021.

While weaker than expected economic data has recently been a positive for the markets amid expectations it would convince the Federal Reserve to lower interest rates, traders now seem concerned the Fed has waited too long and could lead the U.S. into a recession.

Negative sentiment has also been generated in reaction to the latest earnings news, with shares of Intel (INTC) plummeting by 24.5 percent in pre-market trading after the semiconductor giant reported weaker than expected second quarter results.

Online retail giant Amazon (AMZN) is also seeing substantial pre-market weakness after reporting weaker than expected second quarter revenues and providing disappointing guidance for the current quarter.

Shares of Apple (AAPL) are also moving to the downside in pre-market trading even though the tech giant reported fiscal third quarter results that beat analyst estimates on both the top and bottom lines.

After extending Wednesday’s rally early in the session, stocks moved sharply lower over the coursed the trading day on Thursday. The major averages all showed substantial moves to the downside.

The tech-heavy Nasdaq plunged 405.25 points or 2.3 percent to 17,194.15, the S&P 500 tumbled 75.62 points or 1.4 percent to 5,446.68 and the Dow slumped 494.82 points or 1,2 percent to 40,347,97.

The sell-off on Wall Street came as some disappointing data led to concerns about the outlook for the U.S. economy, offsetting optimism about a near-term interest rate cut by Federal Reserve.

The Institute for Supply Management released a report showing U.S. manufacturing activity unexpectedly contracted at an accelerated rate in the month of July.

The ISM said its manufacturing PMI fell to 46.8 in July from 48.5 in June, with a reading below 50 indicating contraction. Economists had expected the index to inch up to 48.8 percent.

With the bigger than expected decrease, the manufacturing PMI dropped to its lowest level since hitting 46.6 in November 2023.

“Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and other conditions,” said Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee.

He added, “Production execution was down compared to June, likely adding to revenue declines, putting additional pressure on profitability.”

The Labor Department also released a report showing first-time claims for U.S. unemployment benefits rose to their highest level in almost a year in the week ended July 27th.

The report said initial jobless claims climbed to 249,000, an increase of 14,000 from the previous week’s unrevised level of 235,000. Economists had expected jobless claims to inch up to 236,000.

With the bigger than expected increase, jobless claims reached their highest level since hitting 258,000 in the week ended August 5, 2023.

Early in the session, stocks benefited from a positive reaction to upbeat earnings news from Facebook parent Meta Platforms (META).

Semiconductor stocks saw a substantial pullback following the rally seen in the previous session, with the Philadelphia Semiconductor Index plunging by 7.1 percent.

Airline stocks also showed a significant move to the downside, dragging the NYSE Arca Airline Index down by 5.6 percent.

Considerable weakness was also visible among oil service stocks, as reflected by the 4.0 percent nosedive by the Philadelphia Oil Service Index.

Steel, computer hardware and networking stocks are also saw notable weakness, while interest rate-sensitive utilities and real estate stocks bucked the downward trend.

Commodity, Currency Markets

Crude oil futures are tumbling $1.26 to $75.04 a barrel after slumping $1.60 to $76.31 a barrel on Thursday. Meanwhile, after inching up $7.80 to $2,480.80 an ounce in the previous session, gold futures are surging $34.80 to $2,515.60 an ounce.

On the currency front, the U.S. dollar is trading at 147.16 yen versus the 149.36 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0860 compared to yesterday’s $1.0791.

Asia

Asian stocks slumped the most since 2022 on Friday, with Japanese markets leading regional losses. Recession worries gripped markets as weak U.S. manufacturing and labor market data highlighted emerging cracks in the world’s largest economy.

Heightened Middle East tensions and disappointing earnings updates from Amazon and Intel also dented demand for riskier assets.

U.S. treasury yields plummeted, helping lift gold prices higher. Oil prices recovered some ground in Asian trading after a meeting of top OPEC+ ministers maintained the current oil output policy.

All eyes were on the U.S. payrolls data due later in the day that could shed some more light on the state of the economy and the Fed’s rate path.

China’s Shanghai Composite Index fell 0.9 percent to 2,905.34 as concerns lingered over the country’s economic outlook.

Hong Kong’s Hang Seng Index tumbled 2.1 percent to 16,945.51 amid a global tech rout on concerns over a U.S. recession.

Japanese markets suffered their biggest losses since 2020 on concerns over rising interest rates. The Nikkei 225 Index plunged 5.8 percent to 35,909.70, registering its second-largest point drop in history as technology stocks suffered heavy losses and a strengthening yen clouded the outlook for the country’s exporters.

The broader Topix Index closed 6.1 percent lower at 2,537.60 amid across the board selling.

Seoul stocks tumbled, with the Kospi diving 3.7 percent to 2,676.19, dragged down by tech and semiconductor stocks. Samsung Electronics lost 4.2 percent and SK Hynix nosedived 10.4 percent.

Australian markets fell sharply after scoring record highs in the previous two sessions. The benchmark S&P/ASX 200 Index slumped 2.1 percent to 7,943.20, with miners and financials pacing the declines. The broader All Ordinaries Index fell 2.1 percent to 8,170.40.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index dipped 0.3 percent to 12,453.04.

Europe

European stocks have fallen on Friday, extending losses from the previous session as a risk-off mood prevailed amid fears that the U.S. Federal Reserve has left it too late to begin cutting interest rates and risks damaging the world’s largest economy.

On a light day on the economic front, French industrial production recovered in June, largely driven by the rebound in transport equipment output, data from the statistical office INSEE showed.

Industrial production registered monthly growth of 0.8 percent in June, in contrast to the 2.2 percent decrease in May. However, this was weaker than the expected growth of 1.0 percent. Manufacturing output also grew by 0.8 percent, reversing May’s 2.7 percent decline.

While the German DAX Index has slumped by 1.4 percent, the French CAC 40 Index is down by 0.6 percent and the U.K.’s FTSE 100 Index is down by 0.1 percent.

Tech stocks were coming under selling pressure after U.S. chipmaker Intel said it would cut more than 15 percent of its workforce in a desperate cost-cutting bid.

ASM International plunged 9.4 percent, BE Semiconductor plummeted 7.5 percent, ASML declined 6.5 percent and Infineon Technologies tumbled 3.4 percent.

French insurer AXA rallied 2.3 percent. Its arm AXA Investment Managers has entered into negotiations to sell its investment arm to BNP Paribas in a €5.1bn deal. Shares of BNP Paribas dropped 1 percent.

Energy company Engie jumped 3.3 percent. The company lifted its profit guidance for 2024, citing a strong first-half performance in power generation and lower-than-expected financial costs.

British outsourcing firm Capita fell nearly 3 percent after reporting a fall in first-half revenue.

Wizz Air Holdings lost 4 percent as it reported a decline in both passenger numbers and seating capacity in July.

British Airways owner IAG jumped 6.3 percent after it posted strong first-half results and announced plans to pay a dividend for the first time since the start of the Covid-19.

GSK climbed 2.3 percent on receiving the U.S. FDA approval for its Jemperli treatment in combination with chemotherapy.

U.S. Economic Reports

The Labor Department released a closely watched report on Friday showing employment in the U.S. increased by much less than expected in the month of July.

The report said non-farm payroll employment climbed by 114,000 jobs in July after jumping by a downwardly revised 179,000 jobs in June.

Economists had expected employment to rise by 175,000 jobs compared to the surge of 206,000 jobs originally reported for the previous month.

The Labor Department also said the unemployment rate rose to 4.3 percent in July from 4.1 percent in June. Economists had expected the unemployment rate to remain unchanged.

With the unexpected increase, the unemployment rate reached its highest level since hitting 4.5 percent in October 2021.

At 10 am ET, the Commerce Department is scheduled to release its report on new orders for U.S. manufactured goods in the month of June. Factory orders are expected to tumble by 2.9 percent in June after falling by 0.5 percent in May.