Wall Street dives, ASX to plunge

The weak economic numbers raise the stakes for an already highly anticipated report coming on Friday. Economists expect it to show a slight slowdown in US hiring last month, and Wall Street’s hope is for a Goldilocks type of reading that is neither so hot that it puts upward pressure on inflation nor so cold that it worsens worries about a possible recession.

But the figures could be skewed by the effects of Hurricane Beryl, warns Kevin Khang, senior international economist at Vanguard. It could mean a headline number that looks much worse than underlying factors say.

That makes conditions even more challenging for investors when prices are so high after markets have already rallied so much.

“The economy and overall the consumer is stretched, and we just don’t have a lot of wiggle room to react in an appropriate way if any geopolitical or any other unexpected risks materialise,” said Jeff Klingelhofer, portfolio manager at Thornburg Investment Management.

The S&P 500 would have dropped even more Thursday if not for Meta Platforms and other stocks that reported better results for the spring than expected. Meta, the company behind Facebook and Instagram, was the biggest single force pushing upward on the S&P 500 and rose 4 per cent after reporting profit and revenue that topped analysts’ expectations.

Uncertainty was high heading into its report after other members of the highly influential group of stocks known as the “Magnificent Seven ” had underwhelmed investors. This handful of Big Tech stocks drove the S&P 500 to dozens of records this year, in part on the frenzy around artificial-intelligence technology, but their momentum turned last month on worries investors had taken their prices too high and expectations had grown too difficult.

Some of the concern has centred around how much companies are investing in AI, and how quickly they will see profits because of it. Meta Platforms said late Wednesday that it expects “significant” growth in spending and investment next year on AI research and product development.

While analysts said such spending will have an impact on its results, Meta Platforms highlighted how it’s already seeing some benefits from it, including traction with its AI glasses.

Other technology companies got a less welcome reception from investors. UK. chip giant ARM Holdings delivered better profit and revenue for the latest quarter than expected, for example. But its US-listed shares nevertheless tumbled 17.4 per cent. It did not increase its forecasts for revenue and profit this fiscal year, despite its strong numbers to start it.

Amazon and Apple, which like Meta Platforms are also members of the “Magnificent Seven,” will report their latest results after trading finishes for the day. Apple fell 1.9 per cent, and Amazon dropped 2.1 per cent.

In the bond market, the yield on the 10-year Treasury slumped to 3.98 per cent from 4.04 per cent late Wednesday and from 4.70 per cent in April.

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Traders are largely convinced that the Federal Reserve will cut its main interest rate in September. The only question for them is how many times it may cut this year and next.

Across the Atlantic, the Bank of England cut interest rates for the first time since the onset of the COVID-19 pandemic in early 2020. Inflation in the UK overall had already hit the bank’s target of 2 per cent, something the US central bank is still reaching for.

The FTSE 100 in London fell 1 per cent after erasing an earlier gain, and stock indexes were also weaker across much of Europe and Asia.

Japan’s Nikkei 225 fell 2.5 per cent. A day earlier, the Bank of Japan raised interest rates, a move that helped push up the value of the yen against the US dollar. Such swings can hurt the profits of exporters, and Toyota’s stock tumbled 8.5 per cent in Tokyo even though it reported a rise in profit.

AP

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