This was fuelled by mounting concerns about the health of the US economy with the ISM manufacturing Purchasing Managers’ Index (PMI) contracting to an eight-month low of 46.8 in July with a slump in new orders. Friday’s closely watched jobs report further stoked recession fears, with non-farm payrolls increasing by 114,000 last month, missing expectations, while the unemployment rate ticked up to 4.3%, its highest level in nearly three years. For the week the S&P 500 declined 2.1%, its worst week since April, while the tech-heavy Nasdaq index dropped 3.4%, entering correction territory having fallen over 10% from its July closing high. Small caps, which had seen a rally in July, also suffered and saw a sharp pullback, with the Russell 2000 index down 6.7%.
Aside from recession concerns, earnings reports were another area of focus for the week, with Amazon, Apple, Meta and Microsoft all reporting. A common thread across all the tech giants listed was the large amount of artificial intelligence spending, totalling $106bn overall for the first six months of 2024. Finally, there was the Federal Reserve meeting which concluded on Wednesday with no changes made as expected. The central bank however, did signal that it was poised for a September rate cut, which gave stocks a mid-week boost. After Friday’s job report, market expectations moved towards a 50 basis points rate cut in September. Treasury yields dropped on the rate expectations, with the 10-year Treasury yield dropping as low as 3.79% and seeing its worst week since March 2020.
US growth worries carried across to European market performance, with the pan-European STOXX 600 down 2.9% for the week and regional indices also lower. Tech stocks were particularly weak on Friday, following the global sell-off and also pressured by underwhelming earnings from Intel which weighed on semiconductor stocks. Markets also had to contend with an unexpected uptick in eurozone inflation in July, coming in at 2.6% year-on-year while the unemployment rate also slightly rose to 6.5% in June. The UK FTSE 100 fell 1.3% and gilt yields dropped in response to the Bank of England cutting its key interest rate by 25 basis points to 5%.
Japanese equity markets were amongst the biggest losers of the week, with the Nikkei 225 falling 4.7%. Friday’s session saw the index lose 5.8% in its largest daily decline since March 2020. Stocks were hurt by the disappointing data as well as the continued rebound in the yen, weighing on exporters. Earlier in the week the Bank of Japan lifted its interest rate, an unexpected move for many, and announced a reduction in its bond purchases which had been expected. Chinese equities managed to fare better for the week, with the Shanghai Composite up 0.5% while the Hang Seng saw a modest loss of 0.5%, proving more resilient to the sell-off. This came despite gauges of manufacturing activity cooling, with the Caixin PMI unexpectedly contracting for the first time in nine months.