Worries about the economy sent the stock market tumbling again on Friday.
The Dow slid 804 points, or 1.8%, in recent trading. The S&P 500 was down 1.7%. The Nasdaq Composite was down 2.1%.
After Walmart’s outlook prompted a market slide on Thursday, the latest survey from the University of Michigan added to worries about the U.S. consumer. Consumer discretionary was the S&P 500’s worst-performing sector with a decline of more than 2.6%. Industrials were also down 2.3% in the wake of weak flash Purchasing Managers Index readings from S&P Global. The surveys of activity in the manufacturing and services sectors are closely watched economic indicators.
Sevens Report Research’s Tom Essaye argues a soft services PMI was especially dragging on stocks.
“It supports the idea that all the policy uncertainty, chaos, and volatility is starting to actually impact the economy,” Essaye told Barron’s. “Obviously we can’t say that for sure yet, but it was a pretty weak number. Growth has been the unsung hero supporting stocks through all this volatility and the higher-than-expected inflation numbers. If growth starts to give away, then this market could drop a lot.”
Among those worried about the economy is Point72 Asset Management founder Steve Cohen. Bloomberg reported that the billionaire told attendees at a Future Investment Initiative Institute’s summit that he was “pretty negative for the first time in a while.”
Cohen expects economic growth of about 1.5%. He was also negative on the economic impact of Elon Musk’s Department of Government Efficiency and tariffs, according to Bloomberg.
Frank Cappelleri, founder of technical analysis firm CappThesis, told Barron’s that given the S&P 500 hasn’t fallen 1% or more since Jan. 27, a day like this was bound to happen.
“Buyers stepped in early yesterday to limit the damage, but the lack of upside follow-through this morning allowed sell-side momentum to take over,” he says. “While one day doesn’t make a trend, the concern is that this could be the early stages of a trend shift.”
He’s watching the S&P 500’s 50-day moving average of 6010 that is now at risk of being undercut.
“That said, the SPX has repeatedly oscillated around the 50-DMA since the October’23 low, while the moving average continues to trend higher,” he says. “In other words, while holding above it would be ideal, a break below hasn’t been a reliable sell signal for some time.”
Signs of weakness in the economy have traders increasingly betting that the Federal Reserve may find room to cut interest rates in the first half of the year. Odds of at least one cut through June jumped to 63.4% from 52.8% on Thursday.
Of course, Wall Street would rather rate cuts are prompted by slowing price growth rather than worries about the labor market.
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