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The stock market suffered a broad-based selloff on Thursday, with the Dow Jones Industrial Average plunging nearly 500 points, as a flurry of weak economic data amplified recession worries. The tech-heavy Nasdaq Composite bore the brunt of the selling pressure, tumbling 2.3% amid a massive rout in semiconductor stocks.
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The market's rally was brought to a screeching halt after the latest ISM manufacturing index clocked in at 46.8, well below expectations and signaling an outright contraction in factory activity. This followed an unexpected surge in weekly jobless claims to the highest level since August 2023.
The deteriorating economic picture contributed to a sharp drop in Treasury yields, with the 10-year note crashing below the 4% level for the first time since February as investors sought safe-haven assets. Lower yields are a potential red flag for the equity market, as they imply worsening growth expectations that make future corporate earnings and cash flows less valuable.
"The data we got since the Fed meeting signals all of a sudden that people are now worrying that maybe it isn't a soft landing and the Fed has vacillated too long," said Tom Fitzpatrick, a market strategist at R.J. O'Brien. "The bond market is already telling you that we're behind the curve."
Cyclical sectors and stocks that are sensitive to economic downturns were amongst the hardest hit. Dow components JPMorgan Chase and Boeing plummeted 2.3% and 6.1% respectively. The small-cap Russell 2000, which had been rallying on rate cut hopes, got clobbered with a 3% plunge.
However, it was the semiconductor space that saw the most violent price action. The Philadelphia Semiconductor Index cratered over 7% after Arm Holdings' disappointing results sparked a wave of selling in chip stocks. Nvidia, the leader in artificial intelligence chips, got taken to the woodshed with a 6.7% loss, while AMD shares tumbled 8.8%.
On the positive side, Meta Platforms surged 4.8% after the Facebook parent reported better-than-expected results and raised its revenue outlook. However, Amazon failed to join the party after its quarterly revenue guidance came up short, sending its stock down over 4% after the close.
While markets are still pricing in a near certainty of a Fed rate cut in September, Thursday's violent selloff shows that investors are becoming increasingly jittery that the economy may be losing steam faster than expected. With major tech bellwethers like Amazon and Apple set to report after the bell, volatility could persist as traders assess how corporate America is holding up against the bumpy economic backdrop.
If the old axiom "So goes tech, so goes the market" holds true, any further high-profile disappointments could spell more turbulence ahead for the overall stock market in the near-term. But for now, it's the threat of a larger economic downturn that has spooked investors, overshadowing the Fed's dovish policy pivot.
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