More and more indicators pointing to the slowdown of economic growth in the USA and the consequent strengthening of the belief that the Fed will lower interest rates in September lowered the indices on the most important world stock exchanges last week, while on Wall Street the Nasdaq entered the correction area, i.e. went down more than ten percent from its peak.
On Wall Street, the Dow Jones index fell last week by 2.09 percent, to 39,737 points, ending a four-week streak of growth, i.e. the longest positive streak since May. At the same time, the S&P 500 ended the week down 2.06 percent, to 5,346 points, and the Nasdaq down 3.35 percent, to 16,776 points, weakening for the third week in a row.
The surprisingly weak data on the number of job openings in the American economy in July, only 114 thousand against the expected 175 thousand, as well as the increase in the unemployment rate from June’s 4.1 percent to 4.3 percent, unpleasantly surprised investors. At the beginning of the week, the Purchasing Managers’ Index was also published, which indicated a drop in industrial activity in that month to the lowest level in the last eight months, which fueled fears in the market of a slowdown in the world’s largest economy.
All this has now increased expectations that the Fed will significantly reduce interest rates this year, starting in September, in the very week when they decided to keep interest rates unchanged.
“The jobs data signals that the Fed made a monetary policy mistake by not cutting interest rates earlier this week. It is very possible that the Fed will now change its communication until the next meeting to remove any doubt about a September cut,” said Jamie Cox, director of Harris Financial Group.
The VIX index, which measures market volatility or, as they call it on Wall Street, the fear gauge, exceeded 40 percent. Investors turned to less risky asset classes such as bonds, the yen and the Swiss franc, and sold off stocks, with technology stocks taking the biggest hit.
The Nasdaq index is the first of the three major US stock indexes to enter correction territory, as it is now down more than ten percent from its peak of 18,647 points, which it touched on July 10. The S&P 500 index is now down 5.7 percent from its record high, and the Dow is down 3.9 percent.
