Wall Street has slumped despite a blowout profit report from Nvidia, following some mixed reports on the US economy.
The S&P 500 dropped 1.3 per cent for its worst loss in three weeks. It nearly wiped out its gain for the week, which had been a bright spot in what has been a rough August.
The Dow Jones Industrial Average dropped 373 points, or 1.1 per cent , and the Nasdaq composite tumbled 1.9 per cent .
Stocks sank as Treasury yields stabilised following their tumble a day earlier. High yields in the bond market have been upping the pressure because they make investors less willing to pay high prices for stocks and other risky investments. They may be set to go even higher, depending on what the head of the Federal Reserve says in a speech scheduled for Friday.
The yield on the 10-year Treasury rose to 4.23 per cent from 4.20 per cent late on Wednesday. It fell there from 4.33 per cent a day before, close to its highest level since 2007.
Yields found some traction following a couple mixed reports on the US economy. One showed that fewer US workers applied for unemployment benefits last week. It is the latest sign that the job market remains remarkably resilient despite high interest rates.
Another report said orders for long-lasting manufactured goods slumped by more last month than economists expected. That could be a signal that conditions are worsening for the struggling manufacturing industry, but orders actually rose more than expected for the month after ignoring airplanes and other transportation equipment.
For now, weaker-than-expected reports on the economy may counterintuitively be more welcome in financial markets. The economy has managed to avoid a long-predicted recession, but the fear is that it is so solid that it will keep upward pressure on inflation.
The Federal Reserve has already raised its main interest rate to the highest level since 2001 in hopes of grinding down high inflation. High rates work to do that by slowing the entire economy and hurting prices for investments.
Hope had built that the Fed’s latest rate hike in July may prove to be the last of this cycle, after inflation cooled considerably since peaking above 9 per cent last summer. Traders have also made bets for the Fed to begin cutting rates early next year.
But a series of stronger-than-expected reports on the economy has diminished those hopes. That is why Fed chairman Jerome Powell’s speech on Friday morning is so highly anticipated. He will be speaking at an event in Jackson Hole, Wyoming, that has been the site of major policy announcements in the past by the Fed.
The two-year Treasury yield, which moves closely with expectations for the Fed, rose to 5.01 per cent . A day before, it had dropped to 4.98 per cent from 5.05 per cent after a report suggested US business activity is cooling in August.
That weaker-than-expected report pushed John Vail, chief global strategist at Nikko Asset Management, to think Powell may not sound as aggressive about keeping rates high.
But he still says Mr Powell “will likely express concerns about inflation not falling fast enough and that the market should not expect any cuts through at least the first part of 2024″.
Thursday’s weakness for stocks came despite a much stronger-than-expected profit report from Nvidia, one of Wall Street’s most influential stocks. That raised hopes that this year’s frenzy on Wall Street around artificial-intelligence technology is not just hype.
Nvidia first stunned the market three months ago when it said the quick adoption of AI would send its revenue soaring in the three months to July. Its sales came in even better than forecast, at 12.51 billion US dollars (£9.93 billion), and the company gave a forecast for the current quarter that again blew past Wall Street’s expectations.
Nvidia shot up more than 6 per cent in the morning and seemed to be heading for a record close. But its gain diminished through the day, and it finished up by just 0.1 per cent . It was nevertheless one of the strongest forces pushing up on the S&P 500, which saw more than 80 per cent of stocks within it fall.
On the losing end of Wall Street, Dollar Tree fell 12.9 per cent despite reporting stronger profit and revenue for the latest quarter than expected. It said customers are shifting their purchases towards products that are less profitable for the company. Like other retailers, it also cited inventory “shrink”, which is a term the industry uses to describe theft and other losses of products.
Petco tumbled 20.6 per cent after saying its customers are also feeling pressure. The seller of pet supplies cut its forecast for earnings over the full year, though its results for the latest quarter matched or beat analysts’ expectations.
All told, the S&P 500 fell 59.70 points to 4,376.31. The Dow dropped 373.56 to 34,099.42, and the Nasdaq sank 257.06 to 13,463.97.
In stock markets abroad, indexes were mixed in Europe after mostly rising in Asia.
Stan Choe -AP, PA