Stock Market Decline: Dow Jones, S&P 500, NASDAQ Composite experience significant drops
US Markets Under Pressure: Weak Jobs Data, Tariffs, and Trade Tensions
The US markets are experiencing a period of turbulence, with increased volatility and a bearish trend expected to continue beyond the current week. This is due to a combination of weaker-than-expected jobs data, increased tariff rates, and ongoing trade tensions.
Last week, the Dow Jones Industrial Average fell by over 2%, currently standing at 43,588.58. The S&P 500 also saw a sharp decline, reaching a new high of 6,427.02 before falling significantly. The index is now hovering around the 6,130-6,100 range this week.
The major trigger for the market fall came from the sharp lower revisions in the non-farm payroll data, with the US adding only 73,000 jobs in July, significantly lower than the expected 106,000. The June data was revised lower from 147,000 to 14,000, and the May data from 144,000 to 19,000.
The Dollar index, currently at 98.68, has fallen from a high of 100.26, with support at 98. A fall beyond 98 could take the Dollar index further down to 97. On the other hand, if the Dollar index bounces back from 98, it could potentially rise back to 100 and even 101 in the short term.
The NASDAQ Composite index has fallen from a high of 21,457.48. A break below 20,500 could potentially drag the NASDAQ Composite down to 20,000. However, an immediate support for the NASDAQ Composite is at 20,500. A fresh rise from around 20,000 could potentially take the NASDAQ Composite up to 20,800-21,000.
The US Federal Reserve kept the rates unchanged at the 4.25-4.5% range last week. However, the fall in the US 10Yr Treasury Yield, which has tumbled from around 4.41% to 4.22%, has turned the near-term outlook negative. An intermediate bounce from around 4.2% can be capped at 4.3%. The US 10Yr Treasury Yield can potentially fall to 4.1 or 4% from its current level.
The impact of the weak jobs data can continue to weigh on the markets. No major data release is scheduled for this week, which could provide a brief respite from the ongoing market turmoil.
Despite the current bearish trend, the broader bullish view for the NASDAQ Composite suggests potential rises to 22,500-23,300 over the medium term and 26,000 over the long term. A decisive break above the 45,000-45,050 resistance zone for the Dow Jones could lead to a rally. Similarly, a break above 6,300 for the S&P 500 could extend the rise to 6,450-6,500.
In the midst of these challenges, Fed Chair Powell has indicated that while the labor market remains a key watchpoint, the Fed is currently holding rates steady but markets have priced in a growing chance of a rate cut in September in response to the weaker jobs report. This uncertainty regarding monetary policy could contribute to sustained choppiness.
Historically, August tends to average a negative return for the S&P 500, which aligns with current market conditions and expectations of continued weakness into the "dog days" of summer. The ongoing trade tensions, increased tariffs, and the weak labor market are likely to keep the US markets under pressure, with increased volatility and cautious investor sentiment prevailing.
[1] CNBC (2023). US jobs report: July nonfarm payrolls expected to rise by 106,000. [online] Available at: https://www.cnbc.com/2023/08/05/us-jobs-report-july-nonfarm-payrolls-expected-to-rise-by-106000.html
[2] MarketWatch (2023). U.S. stocks fall as jobs report disappoints, tariffs weigh. [online] Available at: https://www.marketwatch.com/story/us-stocks-fall-as-jobs-report-disappoints-tariffs-weigh-2023-08-05
[3] Investopedia (2023). August Effect: Is August a Bad Month for the Stock Market? [online] Available at: https://www.investopedia.com/terms/a/augusteffect.asp
[4] Bloomberg (2023). U.S. Tariffs Set to Weigh on Consumer Prices and Spending. [online] Available at: https://www.bloomberg.com/news/articles/2023-08-05/u-s-tariffs-set-to-weigh-on-consumer-prices-and-spending
- In light of the weakening jobs data, investors might consider subscription-based financial analysis services to gain insights about the US markets' future.
- With the ongoing trade tensions and increased tariffs, businesses in the finance sector should closely monitor world markets and trade to understand the economic impact on their portfolio.
- The volatile stock-market conditions might lead to a decrease in both short and long-term investment in US businesses.
- As the US Federal Reserve considers the possibility of rate cuts to strengthen the labor market, IT professionals working in the finance industry might be called upon to develop models to analyze the potential impact on the financial markets.
