U.S Stocks Down Sharply as Jobs Growth Cools More Than Expected

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Main Content:

1.    Major indexes weekly performance 

2.    Major indexes Monthly performance for Jul 

3.    U.S stocks weekly wrap 

4.    S&P 500 sector index weekly performance 

5.    China/Hong Kong stocks weekly wrap 

6.    Singapore stocks weekly wrap 

7.    Major indexes weekly chart and technical support & resistance levels

U.S.

For the week ended Aug 2, major U.S. indexes closed lower, as investors reacted to the busiest week of the quarterly earnings reporting season and arguably the most important week of monthly economic data. The recent rotation toward value stocks and small-caps stalled, at least in part, as the small-cap Russell 2000 Index pulled back sharply at the end of the week. The technology-heavy Nasdaq Composite(COMP) pulled back over 10% from its July high, putting it in a technical correction. Refer to below major indexes weekly performance table.

Refer to below major indexes monthly performance table for Jul.

Key highlights for the week and next:

1.    Interest rates. After a 2-day FOMC meeting, it was concluded Fed interest rate unchanged at 5.25% - 5.50%, as was expected, but it tweaked its statement to reflect the growing chance of a September rate cut. The start of an easing cycle is now in sight as focus shifts to jobs. 

2.    Jobs. The July payrolls report on Friday showed that the U.S. economy added 114k jobs, less than the 175k expected, with some modest downward revisions to prior months. The unemployment rate jumped to 4.3% vs. consensus of 4.1%, and wage growth increased 3.6%, the smallest gain in more than three years. 

3.    Inflation. Inflation is moving closer to target, providing breathing room for the Fed to ease. The unexpected jump in July's unemployment rate likely cements expectations for a September rate cut, potentially followed by one or two more cuts later in the year. 

4.    Mega-tech. Four of the Magnificent 7 stocks reported earnings (Microsoft, Meta, Amazon, Apple) in the week. The tech giants reported strong growth, but that wasn't enough to push prices higher, as the bar of expectations was high. The recent rotation out of growth stocks continues. 

5.    Volatility. Volatility was subdued in the first half of the year, with the VIX index, the so-called “fear indicator” a proxy for stock-market fluctuations, hovering around 14, which is 30% below its long-term average. But the VIX indicator spiked up 60% to as high as 29.66 on Friday to highest since Mar 2023 at one point and closed at 23.39, still a 26% gain in one day. 

6.    Jul ISM Manufacturing PMI fell unexpectedly to 46.6, its lowest level since last November and marking nearly two years of almost continuous contraction in the sector. 

7.    Bull market likely to continue. The economy continues to expand but at a slowing pace; productivity is on the upswing; and corporate earnings are rising.

SPX sectors in play

Five out of the 11 sectors of SPX closed with gains for the week. Defensive names outperformed growth. Utilities(XLU) was top gainer while Technology(XLK) lagged. Companies representing nearly 40% of the S&P 500’s market capitalization reported Q2 earnings during the week, including four of the Magnificent Seven—Microsoft, Meta Platforms (Facebook), Apple, and Amazon.com. Amazon.com shares fell over 11% in early trading Friday following the previous evening’s report and earnings call.

Refer to below SPX sectors ETF weekly performance table.

Indexes technical levels

DJI index closed with 1^st weekly loss after 4-week up streak, Nasdaq(COMP) and SPX closed with 3^rd weekly decline. Nasdaq(COMP) pulled back over 10% from its July high, putting it in a technical correction. SPX lost 5.7% in three weeks. Click below three indexes for their weekly charts.  

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

China stocks were mixed after weak manufacturing data tempered investor sentiment. The Shanghai Composite Index(SSE) gained 0.5% and the blue chip CSI 300 was down 0.73%. In Hong Kong, the benchmark Hang Seng Index retreated 0.45%. (Refer to the above weekly performance table).

Key highlights for the week and outlook for China/HK:

1.    China’s official manufacturing Purchasing Managers’ Index (PMI) slipped to 49.4 in July from 49.5 in June, marking the third consecutive monthly contraction as production and new orders declined, according to the National Bureau of Statistics. The nonmanufacturing PMI, which measures construction and services activity, slipped to 50.2 from 50.5 in June, as expected. In a statement following the release, officials attributed the declines to seasonal factors and extreme weather events in some cities in China. 

2.    The private Caixin/S&P Global survey of manufacturing activity unexpectedly contracted for the first time in nine months. The Caixin manufacturing PMI, which polls smaller, export-oriented firms, fell to a weaker-than-expected 49.8 in July from June’s 51.8. Taken together, the various PMIs suggested that momentum in China’s export sector, one of the few bright spots in its economy, was slowing. 

3.    Profits at industrial firms rose by 3.6% in June from a year ago, up from a 0.7% gain in May, according to official data. Analysts said a steady recovery in topline revenue amid stronger industrial production growth and slower producer price declines drove June’s rise. However, persistent weakness in domestic demand has raised speculation that Beijing will continue to roll out measures to shore up the economy as recent stimulus measures have done little to boost consumption.

SSE weekly chart

.HSI weekly chart

Singapore

STI index was in 3^rd weekly decline in a row, with 1.31% down this week. The index closed at 3381.45, just sitting above its 50dma level at 3380.8 level, which is a major support level to watch in coming week.

Refer to below index stocks weekly performance.

Click below for STI weekly chart.

STI weekly chart

Source: Some contents and data excerpted from various public market reports.