US Stocks Drop Amid Signs of Cooling Economy

US Stocks took a hit on Friday, concluding the week with losses and breaking winning streaks for major indexes.

The technology-focused Nasdaq Composite declined by 1%, while the S&P 500 saw a 0.8% drop. The Dow Jones Industrial Average fell by 219 points, equivalent to a 0.6% decrease. All three indexes recorded losses for the week, putting an end to eight consecutive weeks of gains for the Nasdaq and a five-week winning streak for the S&P 500.

US Stocks Tumble

Investors attributed the downturn to economic indicators signaling a cooling global economy and policy actions that could potentially push it into a recession. Central banks in various countries raised interest rates during the week, and Federal Reserve Chair Jerome Powell informed Senate lawmakers that the central bank’s campaign against inflation is likely to continue.

“Investors are becoming more cautious,” commented John Lynch, Chief Investment Officer of Comerica Wealth Management.

The composite Purchasing Managers’ Index (PMI) for the US, a measure of activity in the manufacturing and services sectors, dropped to 53 in June from the previous month’s 54.3. A reading above 50 indicates an increase in activity.

“These numbers suggest a slowing economy,” stated Charlie Ripley, Senior Investment Strategist at Allianz Investment Management. “Coupled with a market that has experienced upward momentum, people are looking to secure their gains.”

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Despite the recent decline, the major US stock indexes remain in positive territory for the year, with the Nasdaq showing a gain of 29%.

In June, business activity in Europe experienced a significant slowdown due to weakening demand for services. Data also revealed larger-than-expected slowdowns in Japan and Australia.

Earlier this month, Federal Reserve officials decided to keep interest rates unchanged following ten consecutive hikes, which brought the benchmark rate to a range between 5% and 5.25%. However, most officials projected two more rate increases this year, potentially reaching a 22-year high. Derivative markets indicate that traders anticipate one more interest rate hike by the Fed this year.

Government bond prices rose, resulting in lower yields. The yield on the 10-year US Treasury note declined from 3.797% to 3.737% on Thursday. Oil prices continued their recent decline, driven by concerns about a slowing economy. Brent crude futures settled at $73.85 per barrel, down 0.4% on Friday and 3.6% for the week.

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All 11 sectors of the S&P 500 closed with losses.

Chip stocks underperformed after experiencing significant gains earlier this year due to investor enthusiasm surrounding artificial intelligence. The PHLX Semiconductor Sector Index recorded a 4.5% decline for the week, including a 1.8% drop on Friday. Notably, Nvidia, the best-performing stock in the S&P 500 this year, fell by 1.9% on Friday, while Advanced Micro Devices declined by 0.6%.

“This is a healthy pullback rather than a fearful one,” suggested Virag Shah, Portfolio Strategist at Van Leeuwen & Co. “After the debt ceiling deal and the AI frenzy, the market had a strong rally in the past two months or so.”

The semiconductor index is still up by 38% for the year.

CarMax shares surged by 10% to reach their highest level since September after the used-car retailer reported better-than-expected earnings.

Shares of 3M rose by 0.4% following the company’s agreement to pay up to $12.5 billion to settle hundreds of lawsuits filed by cities alleging water contamination.