Recession fears trigger US market selloff

Fresh activity data triggered fears that the Fed has left it too late to start its rate cut cycle and risks of a recession are rising.

The Dow Jones shed 494 points to close down 1.21 per cent on the day. The broader S&P 500 closed 1.37 per cent lower and the Nasdaq slipped 2.3 per cent. The small cap benchmark Russell 2000 index fell 3 per cent.

Turning to US sectors, the worst performer was Technology which gave up 3.36 per cent. The best performing sector was Utilities which closed up 1.85 per cent.

Recession fears were triggered when several data prints pointed to a faster and deeper than expected slowdown in economic activity. Initial jobless claims rose the most since August 2023 and this was followed by the ISM manufacturing index, a barometer of factory activity in the U.S., which came in at 46.8 per cent, worse than expected. Post the releases the 10-year Treasury yield dropped below 4 per cent for the first time since February.

These weak data releases come a day after central bank policymakers chose to keep rates at the highest levels in two decades, when Fed Chair Jerome Powell gave investors, some hope by signalling a September rate cut is on the table.

Not surprisingly stocks that would suffer the most under a recession were among the biggest losers on the day, including JPMorgan Chase, which lost 2.3 per cent, and Boeing, which fell more than 6 per cent. Nvidia fell 6.7 per cent and Tesla lost 6.6 per cent as six of the magnificent seven were lower.

Amazon reported weaker-than-expected revenue for the second-quarter and compounded the negative news by issuing disappointing earnings guidance. Amazon shares slid as much as 6 per cent in extended trading. Meta Platforms bucked the trend rallying 4.8 per cent on stronger-than-expected second-quarter results and upbeat guidance.

Apple's fiscal third-quarter revenue increased 4.9 per cent to $85.78 billion, surpassing analyst expectations, driven by stronger-than-anticipated iPhone sales. Despite iPhone sales declining 0.9 per cent to $39.3 billion, Apple outperformed expectations due to increased demand ahead of new AI features.

Atlassian reported strong Q4 FY24 results with total revenue reaching $1.132 billion, driven by a 34 per cent surge in subscription revenue. However, the company recorded a net loss was $196.9 million for the fourth quarter of fiscal year 2024, compared with net loss of $59.0 million for the fourth quarter of fiscal year 2023.

Futures

The SPI futures are pointing to a 1.8 per cent fall.

Currency

One Australian dollar at 7.30am was buying 64.99 US cents.

Commodities

Gold has added 0.32 per cent. Silver has lost 1.59 per cent. Copper has dropped 2.25 per cent. Oil has lost 2.05 per cent.

Figures around the globe

European markets closed lower. London’s FTSE fell 1.01 per cent, Frankfurt lost 2.30 per cent, and Paris closed 2.14 per cent lower.

Turning to Asian markets, Tokyo’s Nikkei fell 2.49 per cent, Hong Kong’s Hang Seng lost 0.23 per cent, while China’s Shanghai Composite closed 0.22 per cent lower.

Yesterday, the Australian share market closed 0.28 per cent higher at 8114.67.

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap, Marketech.

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