Wall Street Indices Drop on Weak U.S. Data:
American stocks declined after releasing weaker-than-expected economic data,
raising concerns about U.S. corporate earnings projections.
This came as long-term inflation expectations surged to levels not seen since 1995.
Content
Investor Concerns
Signal of the Beginning of a Correction
Performance of Indices and Markets
Decline in Consumer Spending
Profit Taking in U.S. Stocks
Hedge Funds
Investor Concerns Over Economic Reports
Economic reports issued on Friday covering consumer sentiment,
housing,g, and services sectors raised concerns among investors when the Federal Reserve is holding off on cutting interest rates.
The S&P 500 index fell by more than 1.5% during that period, while bond prices rose.
In addition, options worth $2.7 trillion linked to stocks and exchange-traded funds expired,
often leading to increased price volatility.
The rally in shares of COVID-19 vaccine manufacturers,
following trading on reports about a new coronavirus study in China,
also deepened these fluctuations.
Is This a Signal of the Beginning of a Correction in the U.S. Stock Market?
Keith Lerner from Truist Advisory Services believes that the convergence of these factors—
especially in an overvalued market—which could trigger minor changes.
Meanwhile, Katie Kaminski from AlphaSimplex Group described the day as “a typical day marked by a decline in risk appetite.”
In another statement, Andrew Brenner from NatAlliance Securities asked,
“Is this the beginning of a correction?”
He added that concerns over weak economic expectations render inflation secondary,
noting reports of a new virus discovered in bats. He remarked,
“Does anyone want to sell Treasury bonds before the weekend?”
Performance of Indices and Markets
The S&P 500 index declined by 1.7%, while the Nasdaq 100 fell by 2.1%.
The Dow Jones Industrial Average dropped by 1.7%,
led by a decline in UnitedHealth Group’s shares,
while the Dow Jones Transportation Average fell by 2.6% and the Russell 2000 by 2.9%.
The “Seven Giants” stock measure also lost 2.5% of its value.
The late surge in the Treasury bond market also caused
the 10-year bond yield to drop for several consecutive
weeks as traders sought safe-haven assets amid falling stock and oil prices;
the yield declined by 8 basis points to reach 4.43%, while the dollar index rose by 0.2%.
Concerns Over Declining Consumer Spending
Jina Bolvin from Bolvin Wealth Management Group
stated that the uncertainty surrounding monetary policy and declining retail sales expectations
highlighted by Walmart’s consumer spending tracking
may provide the impetus for a healthy market correction despite
strong underlying fundamentals supporting continued gains.
Bolvin noted that profit growth has increased, and although
The Federal Reserve might remain in a holding pattern, so the next step could be a rate cut.
She added, “Unexpected consumer data could impact spending, helping alleviate inflationary pressures.”
Profit Taking in U.S. Stocks
Mark Hackett from Nationwide believes that the markets
are undergoing a period of profit-taking after two years of outstanding performance.
He pointed to an interesting shift in market leadership that could drive markets upward,
as risk-return dynamics attract investor attention compared to value and global markets.
Ed Kliesold and Thana Nguyen from Ned Davis Research also noted
that most instances of profit-taking in the U.S. stock market have
ended with the market continuing to rise, except for the bear market in 1962.
Historical trends suggest profit-taking will persist before any upward movement based on inflation and earnings.
Hedge Funds’ Stance
Meanwhile, according to strategists at Goldman Sachs Group,
hedge funds have reduced their net positions in most of the “Seven Giants” stocks.
The team, comprising Ben Snyder and Jenny Ma,
explained that “recent deposits show greater selectivity in choosing sectors and popular themes.”
Despite this reduction, six companies among the mega-cap group
still hold high positions with hedge funds, except Tesla.
More broadly, short-selling positions in the average stocks
on the S&P 500 have reached their highest level since 2020,
now at 2% of market capitalization.
Wall Street Indices Drop on Weak U.S. Data