Wall Street Ends a Wild and Scary Week Almost Exactly Where It Began: More Tests Loom Next Week
After a volatile week that began with Japanese stocks experiencing their worst loss since the Black Monday of 1987, and US stocks subsequently soaring to their best day since 2022, the market ended Friday slightly higher, bringing Wall Street almost to the same point it started the week.
Market Recap
The S&P 500 rose 0.5%, reducing its weekly loss to a negligible 0.04%. Similarly, the Dow Jones Industrial Average gained 51 points (0.1%), and the Nasdaq composite climbed 0.5%. This rebound brought the S&P 500 within 5.7% of its record high set last month, despite falling nearly 10% below that level during the week. The market had been experiencing a relatively smooth ascent, so this sudden volatility and spike in fear, reminiscent of the 2020 COVID crash, came as a shock. However, it may not be over yet, as concerns about the US economy remain high.
Economic Worries
Next week, important reports on inflation, retail sales, and other economic indicators will be released. These reports will be closely watched, as the strength of the US economy is still a major concern. Recent reports have shown weaker-than-expected hiring and economic growth, raising questions about whether the Federal Reserve has been too aggressive in raising interest rates to combat inflation. These interest rate hikes can slow down the economy.
Earnings Reports
Despite the market’s volatility, some companies reported better-than-expected profits for the spring quarter. Expedia Group jumped 10.2% after delivering stronger results, although it noted a softening of demand in July. Take-Two Interactive, the company behind the Grand Theft Auto and NBA 2K video games, also reported better-than-expected results and rose 4.4%. These positive earnings reports provided some solace to investors in an otherwise uncertain market.
Global Market Factors
The recent market turmoil has also been influenced by factors outside the US. The sharp strengthening of the Japanese yen has forced hedge funds and other traders to exit a popular trade, sending global markets reeling. However, a promise from a top Bank of Japan official to halt further rate hikes as long as markets are “unstable” has helped stabilize the yen.
Yields Fall
In response to the concerns about the US economy, Treasury yields have fallen, indicating that investors are seeking safer places for their money and anticipating interest rate cuts from the Federal Reserve. The yield on the 10-year Treasury fell to 3.94% from 3.99% on Thursday.
Upcoming Reports
Next week’s reports could lead to further market колебания. The retail sales report on Thursday will provide insight into consumer spending. Economists expect growth after a stall in June, as lower-income households have been struggling to keep up with rising prices. The unemployment benefits report will also be released on Thursday, and a positive report could boost market confidence, while a negative report could further dampen sentiment.
The most important reports of the week will be the inflation updates on Tuesday and Wednesday. A worst-case scenario would be higher-than-expected inflation accompanied by signs of a weakening economy. This would put the Federal Reserve in a difficult position, as it would have to decide whether to lower interest rates to stimulate the economy or keep them high to control inflation.
It is important to note that while the US economy is slowing down, it is not currently in a recession, and many economists believe a recession is unlikely.
AI Skepticism
Another factor contributing to the recent market volatility is growing skepticism about the rush into artificial intelligence (AI) technology and its potential for profit growth. The excitement around AI had driven a handful of Big Tech stocks to new highs, even as rising interest rates weighed on other areas of the market. However, the group of stocks known as the “Magnificent Seven” has lost momentum in recent weeks as investors question the sustainability of their high valuations.
In conclusion, Wall Street ended a tumultuous week almost where it began, as concerns about the US economy and global market factors continue to weigh on investors’ minds. Next week’s economic reports will be crucial in shaping the market’s direction, and the Federal Reserve’s response to inflation and economic growth will be closely watched.
