In today’s stock market news, the Dow Jones Industrial Average dropped by 40,347.97, down 494.82 points, or 1.21%. The 30-stock index fell 744.22 points at its session lows, or roughly 1.8%. 

The Nasdaq Composite fell 2.3% to 17,194.15, while the S&P 500 index lost 1.37% to close at 5,446.68. The small cap benchmark Russell 2000 index, which has recently experienced a rally, fell by 3%.

Fears of a potential recession and concerns that it might be too late for the Federal Reserve to begin cutting interest rates were heightened by recent data showing an increase in initial unemployment claims compared to August 2023.

The U.S. factory activity index, or ISM manufacturing index, came in at 46.8%, lower than expected. This indicates a slowdown in the economy. Following these announcements, the yield on the 10-year Treasury fell below 4% for the very first time since February.

The central bank decided to keep interest rates at their highest level in twenty years. This decision coincides with recent dismal data. Investors found some optimism as Fed Chair Jerome Powell hinted at a possible September interest rate cut.

Notable losers during the trading session included Boeing and JPMorgan Chase. Boeing dropped more than 6%. JPMorgan Chase lost 2.3%. These stocks are particularly vulnerable during a recession.

Better second-quarter results and positive guidance caused Meta Platforms to rise 4.8%. Ahead of what could be a more volatile period for the industry as the November election draws near, investors pulled some chips off the table. 

This hurts even big tech stocks like Nvidia, which saw its lead in artificial intelligence chips drop 6.7%. The S&P 500 is still up 14% for the year, and July was its eighth consecutive month of gains.

US Stock Market Futures 

Apple Reports Higher $1.40 Earnings

As the stock market opens today, Apple shares move both ways from the flat line following the tech giant’s greater third-quarter earnings announcement on Thursday night.

Apple recorded $1.40 earnings per share and $85.78 billion in revenue for the quarter. Based on estimates compiled by Bloomberg, analysts had anticipated Apple to report $84.4 billion in revenue and $1.35 earnings per share.

In one of its most significant markets, China, Wall Street was keenly observing Apple’s performance as the company battled to reclaim market share from domestic competitors like Huawei. Apple is preparing to release the next-generation iPhone in September, and the news has been released.

Apple’s Greater China revenue peaked at $14.7 billion. Bloomberg surveyed analysts, and they predicted $15.2 billion in revenue. 

For last year’s same quarter, Apple reported $15.7 billion in revenue from China. Against estimates of $38.9 billion, total iPhone sales came in at $39.2 billion, which was less than the $39.6 billion Apple recorded in the third quarter of 2023.

AAPL/USD 5-Day Chart

Amazon Declines by 4% Following Sales

In Thursday’s after-hours trading, Amazon’s stock dropped more than 4% as the company revealed revenue figures that fell short of forecasts and unsatisfactory guidance. Amazon’s net sales increased by 10% from the previous year, with its cloud segment, AWS, leading the way with a 19% revenue increase. 

AWS results drove most of the increase in operating profit, which nearly doubled from $7.7 billion to $14.7 billion. From $5.4 billion to $9.3 billion in operating income last year, Amazon saw growth.

Bloomberg data indicates that the company’s ongoing quarter forecast fell short of expectations, with revenue estimates coming in between $154 billion and $158.5 billion, below the Street’s estimate of $158.4 billion for sales.

Analysts had anticipated the company to direct to operating profit nearer to $15 billion for the quarter. The current quarter is anticipated to fall between $11.5 billion and $15 billion.

U.S. Stock Market Predictions

The 2024 stock market has undoubtedly been led by a few well-known names. Yardeni Research has reported that eight major tech companies. This includes Netflix and the Magnificent Seven, who have increased their revenue by 10.5% year over year and increased their earnings per share by 48.8%. 

However, Yardeni noted that even in the absence of these impressive figures, first-quarter profits for S&P 500 stocks increased 8.4%, while sales increased 4.1% over the previous year. 

According to FactSet Research, 79% of S&P 500 companies had surpassed Q1 estimates as of June 7, because 99% of the companies had released their results. That was marginally higher than the 77% five-year average. 

Overall, they exceeded Wall Street projections by 7.4%, which is less than the 8.5% average over the previous five years.

According to Butters, the S&P 500’s forward 12-month price-to-earnings ratio of 20.7 is significantly higher than the 10-year average of 17.8 times profits. It appears that the stock market believes that earnings will keep growing at a favorable rate. 

In early June, Adam Parker, CEO of Trivariate Research, discussed expectations on CNBC. He cited research on profit margins. The research indicates that 75% of large cap companies are expected to increase their profit margins over the next 20 months.

According to Wall Street estimates, earnings will increase steadily at least through 2026. When the mega cap technology shares are excluded, the strong earnings outlook is still respectable. 

The 10-year Treasury bond, which is currently yielding approximately 4.36%, is an example of a longer term bond. When short-term Treasuries offer higher returns than this bond, banks usually avoid lending and investing.

Is A Lower Interest Rate Necessary For The Stock Market?

Interest rates are one significant market factor that has behaved considerably differently than anticipated. One region where the stock market prediction for the next 6 months faces threats is the shifting perception of interest rates among investors.

Wall Street strategists predicted that the US Federal Reserve would cut rates at least 6 times in 2024. Three quarter-point reductions had been demanded by the Fed itself. 

However, the majority of bond traders and portfolio managers now believe that there will only be one or two interest rate cuts by the end of the year. Meanwhile, some completely reject this notion.

The stock market reflects confidence that US economic growth will continue, despite potential Fed delays in easing policy.

CME FedWatch, tracking producer prices and CPI, now forecasts a 100% chance of a quarter-point rate cut in September.

This is a significant increase from 93% as of July 22. After the election, on November 7, the likelihood of at least two one-quarter-point cuts increased to 97%. And as July comes to an end, they stay high.

Unexpected Rise in Jobless Claims

The most recent indication of a better US labour market came last week when weekly jobless claims increased more than anticipated.

The Department of Labor reported that the week ending July 27 saw the issuance of 249,000 preliminary jobless claims. This number was higher than the 235,000 economists had predicted and up from 235,000 the week before. Since August 2023, this was the highest number of weekly filings.

Today’s stock market news highlights the release of new data, providing a fresh source of energy for stocks: the nonfarm payrolls report for July. According to a Dow Jones survey, employment is expected to rise by 185,000, compared to June’s increase of 206,000.

The unemployment rate is expected to remain at 4.1%. This is significant as traders seek recession indicators.

In summary, today’s stock market futures have declined due to depressing economic data and growing concerns about a recession. The Dow Jones Industrial Average fell 1.21%, while the Nasdaq Composite and S&P 500 declined by 2.3% and 1.37%, respectively. These declines followed an increase in unemployment claims and a lower-than-anticipated ISM manufacturing index.

Despite these challenges, Apple reported better-than-expected earnings. However, Amazon’s stock experienced a more than 4% decline due to lower revenue. The market is factoring in a potential interest rate reduction from the Federal Reserve, but the outlook remains uncertain given the recent surge in unemployment claims and the expectation of only minor rate changes.