[New York Stock Market] Sharp Drop Amid US Recession Fears... Nasdaq Down 2.3%

Manufacturing and Employment Indicators Worsen
US 10-Year Treasury Yield Hits 3% Range for First Time in Six Months
Criticism Over Missed July Rate Cut

The three major indices of the U.S. New York stock market all closed lower on the 1st (local time). Investor sentiment worsened as concerns about an economic recession arose due to weakening manufacturing and employment indicators. There were also worries that the interest rate cut hinted at by Jerome Powell of the U.S. Federal Reserve (Fed) for September might be too late to prevent a recession.

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On that day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average, which focuses on blue-chip stocks, closed at 40,347.97, down 494.82 points (1.21%) from the previous trading day. The S&P 500, centered on large-cap stocks, fell 75.62 points (1.37%) to 5,446.68, and the Nasdaq, which is tech-heavy, dropped 405.26 points (2.3%) to close at 17,194.15.

Economic slowdown indicators were released one after another, dragging down the stock market. First, signals of a manufacturing recession emerged consecutively. The U.S. manufacturing Purchasing Managers' Index (PMI) for July, released by S&P Global, was recorded at 49.6. A PMI below 50 indicates contraction, while above 50 indicates expansion; this figure fell below the previous month’s 51.6, marking a shift to contraction after one month. The U.S. Institute for Supply Management (ISM) also reported a July manufacturing PMI of 46.8, down from 48.5 the previous month, showing an accelerated contraction trend.

Signs of cooling in the labor market were also confirmed. According to the U.S. Department of Labor, initial jobless claims for the week of July 21-27 reached 249,000, the highest in 11 months since August last year. Additionally, continuing jobless claims, which count those claiming unemployment benefits for at least two weeks, were 1,877,000 for the week of July 14-20, the highest in 2 years and 8 months since November 2021. Both figures exceeded market expectations and the revised figures from the previous week.

Concerns about labor market cooling and recession are expected to intensify with the July employment report to be released by the U.S. Department of Labor the following day. Experts predict that nonfarm payrolls increased by 177,000 last month, a significant slowdown compared to 206,000 in the previous month. The unemployment rate is expected to remain at 4.1%, the highest in 2 years and 7 months, matching the previous month’s level.

As recession fears deepen, there is analysis in the market that the Fed may have missed the opportunity to cut interest rates in July. The Fed held the federal funds rate steady at 5.25-5.5% for the eighth consecutive time at the Federal Open Market Committee (FOMC) meeting the day before. Chairman Powell signaled a rate cut in September during the subsequent press conference, mentioning "employment risks."

U.S. Treasury yields also plunged sharply. The 10-year U.S. Treasury yield, a global bond yield benchmark, fell 12 basis points (1bp = 0.01 percentage points) to 3.97%, while the 2-year Treasury yield, sensitive to monetary policy, dropped 17 basis points to 4.16%.

Chris Lukki, Chief Economist at FWD Bonds, diagnosed, "The economic indicators released this morning show that the economy is either in recession or moving toward recession," adding, "The winds of recession are blowing strongly."

Tom Fitzpatrick, Managing Director of Global Market Insights at R.J. O'Brien & Associates, analyzed, "The data released after the Fed meeting raises concerns that the Fed may have hesitated too long (waiting for a rate cut), rather than achieving a soft landing."

By individual stocks, JPMorgan Chase fell 2.24%. Bank of America (BoA) also dropped 2.01%. The prospect of a recession hitting bank stocks acted as a negative factor. AI leader Nvidia plunged 6.67%. Meta, which posted better-than-expected earnings the previous day, rose 4.82%. Shake Shack also surged 16.89% after reporting earnings that exceeded market expectations.

International oil prices closed lower as investors focused more on demand decline forecasts than Middle East instability concerns. West Texas Intermediate (WTI) crude fell $1.60 (2.1%) to $76.31 per barrel, and Brent crude, the global oil price benchmark, dropped $1.32 (1.6%) to $79.52 per barrel.