Yesterday, sentiment in equity markets swung sharply as traders and investors digested the implications of slowing global employment, substantial job cuts – as Intel [INTC] announced as many as 18,000 cuts – and a fresh rate-cut cycle following the Bank of England’s 0.25% reduction.
US futures markets have now priced in up to three rate cuts from the US Federal Reserve by year-end. This combination of events rang alarm bells for some, raising the possibility of a recession once again.
US markets
The US experienced a defensive rotation, with the utilities, real estate and consumer staples sectors all posting gains, while the S&P 500 information technology sector fell by 3.36% and consumer discretionary by 2.25%.
In the tech sector, Advanced Micro Devices [AMD] fell to a relative strength index (RSI) of just 31.24%, the second lowest after CrowdStrike [CRWD], which has lost over 42% of its market cap over the last month. Micron Technology [MU] and Super Micro Computer [SMC]) also have RSI readings just above the 30% oversold threshold.
Concerns about future demand also hit energy stocks, with the S&P 500 Energy Sector ETF [XLE] dropping by 2.65%. Hess [HES] and Chevron ([CVX] were among the biggest losers, down by 7.95% and 4.89% respectively.
Equity market sentiment could be tested again today with July’s non-farm payrolls data release at 1.30pm (UK time). Analysts expect that the US economy added 175,000 non-farm payrolls in July down from 206,000 in June. The unemployment rate is expected to remain at 4.1%. However, a weaker number could heighten recessionary fears.
European markets
Early European trade continued in the same vein, with the DAX opening lower and dropping by 1.4%, following the lead of Asian markets like the Nikkei 225, which dropped by almost 6% overnight. The Italian MIB was down by 1.6% by 8.30am (UK time), while the FTSE 100 fell by 0.44%.
Energy prices seemed conflicted, with WTI crude trading up while Brent crude dropped by 0.86%. UK and European natural gas prices dropped by 1.34 %, while gold and silver posted modest gains amid a risk-off narrative.
The biggest faller in the EURO STOXX 50 index was ASML [ASML], which dropped by 5%. This decline follows the announcement of cost-cutting measures at Intel, one of ASML’s biggest customers, which could impact future sales of ASML’s expensive lithography machines. The biggest gainer among the top 50 European stocks was French utility Engie [ENGI], which raised its full-year guidance after posting earnings this morning.
Point of interest
US small-cap companies have been in demand recently, but investors appeared to head for the exit yesterday as the percentage of stocks within the Russell 2000 index trading above their five-day moving average fell from 56.5% to 14.9% on the close.
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