{"id":209926,"date":"2024-08-02T09:46:06","date_gmt":"2024-08-02T13:46:06","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=209926"},"modified":"2024-08-05T03:49:22","modified_gmt":"2024-08-05T07:49:22","slug":"stocks-pull-a-dramatic-u-turn","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/stocks-pull-a-dramatic-u-turn\/","title":{"rendered":"Stocks Pull a Dramatic U-Turn: Aug. 1, 2024"},"content":{"rendered":"\n

The short-lived satisfaction of Fed Chief Powell communicating decent odds of a September rate cut has turned sour as investors are now panicking that the central bank isn\u2019t trimming soon enough. Indeed, in our commentary yesterday, we warned that an afternoon reversal following the FOMC meeting was in the cards. While bulls kept their momentum to finish the month, bears kicked off August by capitalizing on much weaker-than-expected ISM-manufacturing and unemployment claim prints to push equities deep into the red in dramatic U-turn fashion. Market players are also worried that the US is among the last to begin accommodating monetary policy, with the BoE narrowly deciding to reduce borrowing costs this morning.<\/p>\n\n\n\n

Job Market Continues to Soften<\/strong><\/h2>\n\n\n\n

The labor market continues to reflect persistent weakness, with unemployment claim trends worsening in the past two weeks. Initial unemployment claims rose to 249,000 for the week ended July 27, much higher than the 236,000 projected and the 235,000 from the prior period. Continuing claims, meanwhile, increased to 1.877 million for the week ended July 20, above the previous interval\u2019s 1.844 million and the median estimate of 1.860 million. Four-week moving averages also deteriorated on both fronts, rising from 235,500 and 1.852 million to 238,000 and 1.857 million. This morning\u2019s release showing an increase in unemployment claims follows yesterday\u2019s news from ADP <\/a>of employers cutting back on hiring and slowing wage growth. Tomorrow\u2019s non-farm payrolls will provide another fresh look into employer attitudes.<\/p>\n\n\n\n

\"Unemployment<\/figure>\n\n\n\n

Manufacturing and Construction Sag<\/strong><\/h2>\n\n\n\n

Reflecting further evidence of a decelerating economy, the manufacturing sector suffered a severe contraction last month. The Institute for Supply Management\u2019s (ISM) Purchasing Managers\u2019 Index for Manufacturing tanked deep into contraction territory, achieving a score of 46.8, beneath June\u2019s 48.5 and the estimated 48.8. But despite orders and employment significantly weighing on the sector, prices gained momentum, accelerating to 52.9 from 52.1 on a month-to-month (m\/m) basis. <\/p>\n\n\n\n

\"PMI\"<\/figure>\n\n\n\n

Construction spending also showed weakness for the month of June, declining 3%, while analysts anticipated a 2% increase, but the Commerce Department\u2019s data are stale because they do not reflect the recent bump in activity due to lighter mortgage rates.<\/p>\n\n\n\n

Bank of England Cuts Key Rate<\/strong><\/h2>\n\n\n\n

Policymakers with the Bank of England (BoE) voted 5-4 in narrow favor of an initial cut to the benchmark interest rate, lowering it 25 basis points (bps) to 5%. The central bank reached the decision despite services inflation in June reaching 5.7%, a result, in part, of a Taylor Swift tour driving up hotel prices, although inflation-linked telephone contracts were another factor. BoE Governor Andrew Baily said monetary policy committee members anticipate keeping the rate restrictive for a sufficiently long period of time as they expect overall inflation may climb from 2% to 2.75%. The central bank has maintained one of the most restrictive policies among developed nations, with a labor shortage and Brexit having fueled price pressures.<\/p>\n\n\n\n

Artificial Intelligence Drives Strong Earnings While Household Goods Languish<\/strong><\/h2>\n\n\n\n

Artificial Intelligence (AI) resulted in Meta and Qualcomm posting strong quarterly results while the formidable challenges faced by consumers have created a household goods recession. Consider the following earnings release summaries:<\/p>\n\n\n\n