After extending yesterday's rally early in the session, stocks took a sharp turn downward over the course of trading on Thursday, leading to substantial declines across major averages.
The tech-heavy Nasdaq plummeted 405.25 points, or 2.3%, to settle at 17,194.15. The S&P 500 dropped 75.62 points, or 1.4%, to 5,446.68, while the Dow slumped 494.82 points, or 1.2%, to 40,347.97.
This sell-off was largely driven by concerns regarding the U.S. economic outlook, triggered by some disappointing data that overshadowed optimism for a near-term interest rate cut by the Federal Reserve.
According to a report by the Institute for Supply Management, U.S. manufacturing activity unexpectedly contracted at an accelerated rate in July. The ISM’s manufacturing PMI fell to 46.8 in July from 48.5 in June, with a reading below 50 indicating contraction. Economists had anticipated the index would inch up to 48.8.
In light of this sharper-than-expected decline, the manufacturing PMI reached its lowest level since November 2023, when it hit 46.6. Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee, commented, "Demand remains subdued, as companies are hesitant to invest in capital and inventory due to current federal monetary policy and other prevailing conditions." He added, "Production execution also declined compared to June, likely contributing to revenue drops and increasing pressure on profitability."
Additionally, the Labor Department reported that first-time claims for U.S. unemployment benefits rose to their highest level in almost a year during the week ending July 27th. Initial jobless claims climbed to 249,000, a 14,000 increase from the previous week’s unrevised level of 235,000. Economists had expected jobless claims to inch up to 236,000. This increase brought jobless claims to their highest level since the week ended August 5, 2023, when they hit 258,000.
Earlier in the session, stocks had shown gains from a positive reaction to upbeat earnings news from Meta Platforms (META), the parent company of Facebook.
### Sector News
Semiconductor stocks faced a significant pullback following the previous session's rally, with the Philadelphia Semiconductor Index plunging by 7.1%. Airline stocks also experienced a substantial decline, dragging the NYSE Arca Airline Index down by 5.6%. Oil service stocks witnessed marked weakness as well, as evidenced by the 4.0% nosedive in the Philadelphia Oil Service Index. Steel, computer hardware, and networking stocks also saw notable declines, while interest rate-sensitive utilities and real estate stocks managed to buck the downward trend.
### Other Markets
In overseas trading, stock markets across the Asia-Pacific region displayed mixed performance on Thursday. Japan's Nikkei 225 Index plunged by 2.5% and China’s Shanghai Composite Index dipped by 0.2%, whereas South Korea’s Kospi rose by 0.3%. European stocks moved sharply lower, with the U.K.'s FTSE 100 slumping by 1.0%, France’s CAC 40 Index dropping by 2.1%, and Germany’s DAX Index diving by 2.3%.
In the bond market, treasuries moved markedly higher as renewed concerns about the economic outlook took hold. Consequently, the yield on the benchmark ten-year note, which moves inversely to its price, dropped 13.3 basis points to 3.976%.
### Looking Ahead
Friday’s trading is likely to be influenced by market reactions to the Labor Department's closely watched report on July employment. Additionally, after today's trading close, key companies such as Amazon (AMZN), Apple (AAPL), and Intel (INTC) are scheduled to announce their quarterly results. Energy giants Exxon Mobil (XOM) and Chevron (CVX) are also set to report their quarterly results before the start of Friday's trading session.
