On Friday, US stocks closed in the red as investors grappled with a mix of corporate earnings and fresh job reports. The Dow Jones Industrial Average pared its earlier gains and finished the day 148 points lower, while the broader S&P 500 and tech-heavy Nasdaq 100 lost 0.5% and 0.3%, respectively. The decline was largely driven by a 4.8% fall in Apple’s share price after the tech giant reported disappointing quarterly results and a gloomy outlook, which led its market capitalization to dip below $3 trillion.
The jobs report was also a mixed bag, leaving investors uncertain about the Federal Reserve’s future policy moves. In June, the US economy added 187,000 jobs, falling short of market expectations of a 200,000 increase. However, the unemployment rate unexpectedly dropped to 3.5%, and hourly earnings exceeded estimates, growing at a healthy 4.4% yearly rate. The conflicting signals from the labor market did little to alter bets on the Fed’s outlook.
Despite the market’s overall dip, several companies managed to post strong quarterly results. And were rewarded with notable stock price gains. Amazon surged 8.3%, while Booking, DraftKings, and Dropbox saw increases of 7.8%, 5.8%, and 5.9%, respectively.
Throughout the week, major indices suffered losses, with the Dow booking a 1.1% fall. The S&P 500 and Nasdaq 100 experiencing more significant drops of 2.3% and 2.8%, respectively.
The Euro Regains Strength Against the Dollar
Following the jobs report, the Euro rebounded to above $1.1, pressuring the US dollar and bond yields lower. The report indicated signs of a cooling labor market in the US, which sparked concerns among investors. In contrast, the Eurozone reported positive news on its economic front. With the GDP returning to growth and expanding by 0.3% in the second quarter, outperforming forecasts.
While fresh PMI data in Europe showed some areas of concern, such as a slowdown in the services sector and a larger contraction in manufacturing, the overall economic performance was encouraging. Preliminary CPI figures indicated a decline in headline inflation to 5.3%, the lowest since January 2022. However, core inflation remained stable at 5.5%, significantly above the European Central Bank’s target of 2%.
The ECB had recently raised borrowing costs by 25 basis points. ECB President Christine Lagarde hinted at the possibility of another interest rate hike or a pause in September. These actions were taken in response to the soaring inflation levels in the Euro Area.
The Dollar Faces Mixed Fortunes
The dollar index eased further to below 102.2 on Friday, slipping for the second consecutive session. The weaker dollar came as a result of concerns about the cooling US economy, driven by the softer-than-expected nonfarm payroll expansion and a slower wage growth rate. Despite these short-term fluctuations, the dollar is on track to gain for the third consecutive week due to strong US economic data and rising Treasury yields, which have bolstered confidence in the currency.
However, a recent downgrade in the US credit rating has raised concerns about the country’s fiscal outlook, leading to a flight toward the safe-haven dollar. Consequently, the greenback weakened against major currencies, with particularly pronounced selling activity against the Euro, Australian dollar, and New Zealand dollar.
Upcoming Events and Key Focus Areas
In the upcoming week, market participants will closely monitor the US inflation report, which is scheduled for Thursday. The inflation figures are critical in assessing the potential impact on the Federal Reserve’s monetary policy decisions.
The earnings season will continue, with investors paying attention to the performance of various companies across different sectors. Additionally, other crucial events to watch include China’s inflation and trade data, GDP growth figures for the UK and the Philippines, an interest rate decision from the Reserve Bank of India, and inflation reports for Brazil and Mexico.
These events and indicators will undoubtedly influence the global markets, and investors will be eagerly awaiting their outcomes to gauge the economic landscape’s future direction. As always, caution and preparedness will be key in navigating the dynamic and ever-changing world of investments.