Global Markets Weekly Wrap KW 36 : Economic Slowdown Fears Drag Stocks Lower, Tech and Energy Hit Hard

Global Markets Weekly Wrap KW 36 : Economic Slowdown Fears Drag Stocks Lower, Tech and Energy Hit Hard 

Concerns over a potential U.S. economic slowdown led to a significant drop in the stock market, with the S&P 500 experiencing its largest weekly decline in 18 months. Technology stocks were hit the hardest, especially after rumors surfaced that NVIDIA might face an antitrust investigation by the Justice Department, causing its market value to plummet by around $300 billion. Energy stocks also fell due to declining oil prices. On the other hand, more defensive sectors like utilities, consumer staples, and real estate fared better.

Some attributed the downturn to seasonal patterns, as September historically tends to be a challenging month for stocks. Since 1950, it has averaged a 0.7% loss, with the S&P 500 posting notable declines in the past four years. As investors returned from summer vacations, trading volume increased, with markets closed on Monday for Labor Day. A series of weaker-than-expected economic data throughout the week heightened concerns that the Federal Reserve might have delayed easing monetary policy too long.

Manufacturing activity in the U.S. remained in contraction for August, according to the Institute for Supply Management, marking three consecutive months of declining new orders. A Labor Department report on job openings for July revealed a drop to 7.67 million, the lowest since early 2021, with fewer people voluntarily leaving jobs. ADP also reported private payroll growth of just 99,000 in August, much lower than anticipated.

Friday's official jobs report showed that employers added 142,000 jobs in August, under the projected 160,000, and revised July's figures downwards. The unemployment rate fell to 4.2%, and wages increased more than expected. Although a rate cut by the Fed is still expected at the upcoming September meeting, the jobs data tempered expectations for a larger 50-basis-point cut.

Meanwhile, U.S. Treasury yields dipped after the jobs report, reaching their lowest since May 2023. The tax-exempt municipal bond market remained under pressure as supply increased while demand typically wanes in the fall.

In the corporate bond market, Tuesday saw a record day for investment-grade bond issuance, with 27 issuers and $43 billion in new debt offerings, marking the third-largest day in volume terms.

Indexes like the Dow, S&P 500, and Nasdaq all registered declines for the week, with the technology-heavy Nasdaq seeing the sharpest drop. Overseas, European markets also struggled, and China's stock market declined on disappointing economic data. Japan saw losses as well, exacerbated by a stronger yen and concerns over semiconductor stocks.

European Central Bank officials signaled a likely rate cut in September, though opinions differed on the pace of further easing. German manufacturing data was mixed, with rising factory orders but falling industrial production. Japan's markets slumped amid concerns over yen appreciation and export challenges. In China, weaker economic indicators weighed on investor sentiment.

Other key developments included the Polish central bank leaving interest rates unchanged, citing wage growth and inflationary pressures. Chile's central bank lowered interest rates, projecting faster-than-expected declines despite recent inflation spikes from rising electricity prices. 

Checklist for the next week

Major economic events in the US include: 

Initial Jobless Claims; CPI; U. of Mich Sentiment; PPI Final Demand; MBA Mortgage Applications; Wholesale Inventories; Continuing Claims

Major economic events around the world include: 

ECB Meeting; UK Jobless Claims change; Germany CPI; Italy Industrial Production MoM; Mexico CPI