U.S. Stocks May Extend Sell-Off Amid Overseas Weakness

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

An overseas sell-off, which saw Japan’s Nikkei 225 Index record its biggest slump since “Black Monday” in October 1987, is likely to carry over on to Wall Street.

Concerns about the U.S. economy slipping into recession following last Friday’s disappointing jobs report triggered the significant weakness in the overseas markets.

Shares of AI darling and market leader Nvidia (NVDA) are plunging by 13.9 percent in pre-market trading amid an unwinding of the artificial intelligence trade that recently helped the markets to record highs.

Tech giant Apple (AAPL) is also tumbling by 9.9 percent in pre-market trading after Warren Buffett’s Berkshire Hathaway revealed it sold nearly half its stake in the iPhone maker.

Stocks moved sharply lower during trading on Friday, adding to the steep losses posted during Thursday’s session. With the extended sell-off, the tech-heavy Nasdaq dropped to its lowest closing level in two months and the S&P 500 hit a nearly two-month closing low.

The major averages ended the day off their lows of the session but still firmly negative. The Nasdaq dove 417.98 points or 2.4 percent to 16,776.16, the S&P 500 plunged 100.12 points or 1.8 percent to 5,346.56 and the Dow tumbled 610.71 points or 1.5 percent to 39,737.26.

Reflecting the sell-off, the major averages also moved sharply lower for the week. The Nasdaq plummeted by 3.4 percent ,while the S&P 500 and the Dow both slumped by 2.1 percent.

Concerns about the outlook for the U.S. economy continued 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.

“The economy and the stock market have been resilient because unemployment has stayed low and consumers have kept spending, but if that is no longer the case then the Fed has made a serious error in keeping rates too high for too long,” said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance.

Negative sentiment was also generated in reaction to the latest earnings news, with shares of Intel (INTC) plummeting by 26.1 percent after the semiconductor giant reported weaker than expected second quarter results.

Online retail giant Amazon (AMZN) also plunged by 8.8 percent after reporting weaker than expected second quarter revenues and providing disappointing guidance for the current quarter.

On the other hand, shares of Apple (AAPL) moved to the upside after the tech giant reported fiscal third quarter results that beat analyst estimates on both the top and bottom lines.

Semiconductor stocks saw substantial weakness following the disappointing Intel results, with the Philadelphia Semiconductor Index plunging by 5.2 percent to a three-month closing low.

Significant weakness was also visible among oil service stocks, as reflected by the 5.2 percent nosedive by the Philadelphia Oil Service Index.

With Amazon leading the way lower, retail stocks also saw considerable weakness, dragging the Dow Jones U.S. Retail Index down by 4.2 percent.

Computer hardware, airline and financial stocks also moved notably lower amid broad based selling pressure on Wall Street.

Commodity, Currency Markets

Crude oil futures are slumping $1.31 to $72.21 a barrel after plummeting $2.79 to $73.52 a barrel last Friday. Meanwhile, after falling $11 to $2,469.80 an ounce in the previous session, gold futures are plummeting $63.90 to $2,405.90 an ounce.

On the currency front, the U.S. dollar is trading at 142.10 yen versus the 146.53 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.0975 compared to last Friday’s $1.0911.

Asia

Asian shares plummeted on Monday amid fears of a possible U.S. recession and concerns over an escalating Middle East conflict.

China’s yuan leapt to a seven-month high, and the Japanese yen hit its highest levels against the dollar since January after the U.S. reported much lower-than-expected job creation in July and the unemployment rate unexpectedly rose to its highest level in nearly three years, heightening fears the labor market was deteriorating and potentially making the economy vulnerable to a recession.

Gold fluctuated in Asian trading, while oil extended losses from the lowest close in seven months despite rising tensions in the Middle East, with reports suggesting the Benjamin Netanyahu-led government could sanction a pre-emptive strike on Iran to prevent an attack on Israeli soil.

Chinese markets ended lower as weak global cues overshadowed data showing growth in the country’s services activity accelerated in July.

The Caixin/S&P Global services purchasing managers’ index (PMI) rose to 52.1 from 51.2 in June, pointing to expansion for the 19th straight month.

China’s Shanghai Composite Index tumbled 1.5 percent to 2,860.70, while Hong Kong’s Hang Seng Index dove 1.5 percent to 16,698.36.

Japanese markets saw intense selling pressure on concerns that the U.S. economy may be in worse shape than previously expected.

The Nikkei 225 Index nosedived 12.4 percent to 31,458.42, marking its biggest fall since “Black Monday” in October 1987, when it plunged 14.9 percent. The broader Topix Index settled 12.2 percent lower at 2,227.15.

Tech stocks suffered heavy losses due to an unwinding of the artificial intelligence trade. Screen Holdings, Advantest, Tokyo Electron and SoftBank Group slumped 13-19 percent.

Seoul stocks fell for a second straight session amid a tech rout. The Kospi plunged 8.8 percent to 2,441.55, triggering trading curbs of sidecar and circuit breakers on the exchange for the first time since 2020. Chip heavyweights Samsung Electronics and SK Hynix fell around 10 percent each.

Australian markets suffered their worst two-day decline since the start of pandemic. The benchmark S&P/ASX 200 Index dropped 3.7 percent to 7,649.60 on fears of a hard landing for the U.S. economy.

The broader All Ordinaries Index tumbled 3.8 percent to 7,859.40, with tech stocks and financials leading losses.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index ended 1.5 percent lower at 12,264.49.

Europe

European stocks have tumbled on Monday to extend losses from the previous session amid fears the U.S. economy may be heading for a recession.

Concerns over an escalating Middle East conflict also weighed on markets, with reports suggesting the Benjamin Netanyahu-led government could sanction a pre-emptive strike on Iran to prevent an attack on Israeli soil.

In economic releases, a survey revealed the eurozone economy stalled in July as demand for goods and services deteriorated.

The HCOB composite PMI output index fell to a five-month low 50.2 from 50.9 in June.

The services PMI business activity index dropped to 51.9 from 52.8 a month earlier.

Elsewhere, the U.K. service sector’s growth accelerated somewhat in July as demand increased at the fastest rate in more than a year.

The S&P Global Services PMI rose to 52.5 in July from 52.1 in the previous month. The flash score was 52.4.

Eurozone Sentix Investor Confidence fell sharply from -7.3 to -13.8 in August, marking its lowest level since January.

While the German DAX Index is down by 3.3 percent, the U.K.’s FTSE 100 Index is down by 2.9 percent and the French CAC 40 Index is down by 2.6 percent.

Galderma AG surged 7.2 percent after L’Oreal announced the acquisition of a 10 percent stake in the Swiss dermatology company for a non-disclosed amount.

Chip equipment makers ASM International and ASML were down 3-4 percent.

Germany’s Infineon Technologies was little changed, reversing early gains after reports that Nvidia is delaying its next-generation artificial intelligence chips by at least three months.

Aurubis plunged 7.8 percent after the copper producer reported third-quarter earnings before tax (EBT) below expectations.

OCI Global jumped 10 percent after Woodside Energy agreed to acquire the Dutch chemicals maker’s clean ammonia project in Texas for $2.35 billion.

British engineering firm Senior plummeted 5.5 percent despite posting a 10 percent rise in first-half profit.

Ship broker Clarkson slumped 8.5 percent after reporting lower sales and profit in the first half of the year.

U.S. Economic News

The Institute for Supply Management is scheduled to release its report on service sector activity in the month of July at 10 am ET. The services PMI is expected to rise to 51.0 in July from 48.8 in June, with a reading above 50 indicating growth.

San Francisco Federal Reserve President Mary Daly is due to discuss monetary policy and economic trends before a moderated conversation hosted in partnership with the Hawaii Executive Collaborative at 5 pm ET.