The tech-heavy Nasdaq bore the brunt of the sell-off, largely due to declines in the "Magnificent Seven" megacap growth stocks. These include major players like Apple, Microsoft, and Amazon, which have a significant influence on the index. According to Scott Ladner, CIO at Horizon Investments, there was no clear catalyst for the sell-off, but investors appeared to be repositioning ahead of key events like Nvidia’s upcoming earnings and Fed Chair Jerome Powell’s speech at Jackson Hole.
Focus on the Fed:
Global central bank officials have gathered for the Jackson Hole Economic Symposium, where Powell’s speech on Friday is expected to provide crucial insights into the Federal Reserve’s future monetary policy direction. Investors are particularly focused on whether the Fed will signal a rate cut in September.
- Expectations: Powell is anticipated to hint at a 25-basis-point cut, although he may be noncommittal on whether the cut could be larger.
- Fed Commentary: Kansas City Fed President Frank Schmid, Boston Fed President Susan Collins, and Philadelphia Fed President Patrick Harker all indicated that a rate-cutting phase could be on the horizon, with September being a likely timeframe.
Economic Data Impact:
Recent U.S. jobless claims data and a downward revision of payrolls suggest that the labor market is softening, which has eased recession fears. This, combined with ongoing discussions about interest rate cuts, has shaped market expectations. The increased likelihood of a 25-basis-point rate cut at the September policy meeting is supported by these economic indicators.
Market Sentiment and Volatility:
The CBOE Volatility Index (VIX), a popular measure of investor anxiety, breached 18 during the session, reaching its highest intraday reading in a week before settling at 17.56. This rise in volatility reflects market uncertainty ahead of Powell’s speech and further economic data releases.
Notable Stock Performances:
- Snowflake (SNOW.N): Despite raising its full-year product revenue forecast, Snowflake shares dropped 14.7% due to unchanged margin forecasts.
- Zoom Video Communications (ZM.O): Zoom's shares surged by 13.0% after the company raised its annual revenue forecast.
- Advance Auto Parts (AAP.N): The auto parts retailer's shares tumbled 17.5% after the company lowered its annual profit forecast.
Market Breadth and Volume:
Declining issues outnumbered advancing ones on both the NYSE (2.16-to-1 ratio) and Nasdaq (2.25-to-1 ratio), indicating broad market weakness. The S&P 500 posted 58 new 52-week highs and one new low, while the Nasdaq Composite recorded 83 new highs and 68 new lows. Trading volume on U.S. exchanges totaled 9.79 billion shares, below the 20-day average of 11.89 billion shares.
Conclusion:
The market’s attention is squarely on the upcoming Jackson Hole Economic Symposium, where Jerome Powell’s speech could set the tone for the Federal Reserve’s future policy direction. With technology stocks driving the market lower and Treasury yields rising, investors are cautiously awaiting further clarity on the Fed’s stance on interest rates, as well as the ongoing strength of the U.S. labor market.
