stock market slides amid tech sell-off

tech sell-off
tech sell-off

The S&P 500 dropped 1.73% to settle at 5,408.42 on Friday. The Nasdaq slid 2.55% to close at 16,690.83. The Dow Jones Industrial Average fell 410.34 points, or 1.01%, to end at 40,345.41.

This decline marks the S&P 500’s worst week since March 2023. It also marks the Nasdaq’s worst week since 2022. Investors responded to a weak August jobs report by selling off leading technology stocks.

“The market’s oscillating between whether bad news is bad news or if it might provoke the Federal Reserve to act more aggressively than anticipated,” commented Emily Roland, co-chief investment strategist at John Hancock Investment Management. Technology stocks took a significant hit. Major tech giants experienced substantial declines.

Several semiconductor companies also witnessed sharp drops in their stock prices. The week concluded with increased volatility in the equity markets. The S&P 500 registered a 4.3% decline.

The Nasdaq shed 5.8%. The Dow lost 2.9%. Fresh data from August has raised concerns about the health of the labor market and the economy.

This has further spooked markets. According to Dow Jones, nonfarm payrolls grew less than expected. However, the unemployment rate edged down to 4.2%, aligning with expectations.

“The market is generally looking for direction from the Federal Reserve,” said Charles Ashley, portfolio manager at Catalyst Capital Advisors. Investors are anticipating a rate cut at the Fed’s policy meeting later this month. But the extent of the cut remains uncertain.

Generative artificial intelligence (AI) app development may see accelerated growth with its integration into the latest iPhones, as per TD Cowen. “Apple’s software ecosystem could drive faster development of Gen AI apps compared to competitors,” noted analyst Krish Sankar. These apps are expected to significantly enhance end-user productivity.

U.S. crude oil prices dropped to their lowest level since June 2023. OPEC+’s failure to reassure the market about global supply and demand balance has led to this decline. U.S. crude hit a low of $67.17, and shed 8% for its worst week since October.

Brent crude fell 9.8% this week. Charles Schwab has apologized for the technical issues experienced by some investors during the Aug. 5 sell-off.

The brokerage firm highlighted its commitment to ensuring a reliable experience for all clients through rigorous reviews and stress tests. Jeffrey Kleintop, global investment strategist at Charles Schwab, suggested that investors consider international equities for portfolio diversification. Non-U.S. stocks, especially those from Europe, Canada, and the U.K., have outperformed U.S. stocks in Q3.

Goldman Sachs’ chief economist Jan Hatzius predicts that the Federal Reserve will lower interest rates by 25 basis points at its upcoming September meeting.

Tech sell-off impacts major stock indices

He expects three consecutive rate cuts of 25 basis points each by the end of the year.

Tech companies had their worst trading session since early August’s rout amid growing fears of an economic slowdown. These companies suffered the most significant losses, with one major tech firm shedding $279 billion in market value, the largest single-day loss ever recorded by a company. The company’s stock took a further hit following reports that the Department of Justice had subpoenaed it in an antitrust investigation, although the company later denied this.

Additionally, another tech giant experienced a 7% drop in its stock price due to speculation about its potential removal from the Dow Jones Industrial Average. The Composite Index fell by 3.3%, and the sell-off quickly spread to Asian and European markets. The jobs report trailed expectations with about 165,000 jobs added, and prior month job growth was revised lower, indicating continued cooling in the labor market.

The unemployment rate, however, ticked back down to 4.2%. This report shifted expectations for the Fed to enact a more sizable rate cut at its upcoming meeting. Traders now see a 50-50 chance of a 50 basis point cut, up significantly from Thursday.

On Friday, Fed Governor Chris Waller suggested that “the time has come” to lower interest rates. “If the data supports cuts at consecutive meetings, then I believe it will be appropriate to cut at consecutive meetings,” Waller said during a speech at the University of Notre Dame. In corporate news, chipmaker Broadcom’s shares fell more than 10% amid concerns about its various divisions’ performance.

While the Apple supplier is benefiting from a surge in AI spending, other divisions are falling short. This dragged down other chip stocks, with shares of Nvidia falling about 4%. Analysts slashed their earnings expectations for the current quarter by 2.8% during July and August.

Citi US equity strategist Scott Chronert pointed out that estimate revisions for 2024 and 2025 earnings per share have been uninspiring but at least stable. The slight downgrade in estimates could be a trend to watch ahead of the third-quarter earnings season. Next week, investors’ attention will focus on the latest update on consumer prices, with a report set for release on Wednesday.

The report is expected to show headline inflation of 2.6%, a deceleration from previous levels. Core prices, which exclude volatile food and gas costs, are expected to have risen 3.2% over last year, unchanged from July. The data could play a critical role in the Fed’s decision on the size of the upcoming rate cut.

Oil prices are heading for their biggest weekly drop in nearly a year following the weak US jobs report, spurring fears of slowing demand. Crude oil prices fell about 2%, trading just below $68 a barrel, while Brent crude also dipped around 2%, hovering above $71 a barrel. The moves come after OPEC+ extended their voluntary output cuts until December, further tightening the supply outlook.

Market volatility is likely to continue, according to Michael Darda, chief economist and macro strategist at Roth Capital Partners. “The risk of a more material pullback and/or correction is quite high,” Darda said, suggesting that the U.S. economy’s hoped-for “soft landing” might not materialize. He pointed to rising unemployment and elevated earnings expectations as contributing factors to the current volatility.

Shares of Nvidia sank as much as 5% on Friday, leading a sell-off in chip stocks. Other semiconductor names also faced pressure, with Broadcom sliding nearly 9% after a lackluster sales forecast for the fourth quarter overshadowed its earnings beat. Taiwan Semiconductor, Advanced Micro Devices, and ASML each slid more than 4%.

The tech sector led the markets lower on Friday after the unemployment rate fell to 4.2%, prompting some investors to believe the Federal Reserve will cut rates by 25 basis points instead of 50 basis points at its upcoming policy meeting. Investors are increasingly questioning whether capital expenditures for tech infrastructure will continue and if the AI boom has peaked. Nvidia, which has underpinned the market’s rally this year, is on pace to end the shortened trading week down roughly 14%.

Harper Johnson

Harper Johnson stands at the forefront of digital marketing, where she dissects and interprets the impact of online advertising trends, social media dynamics, and search engine algorithms on consumer behavior.

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