Market Decline Deepens as Economic Weakness Outweighs Rate Cut Optimism – Bloomberg

Market Volatility Continues as Megacap Tech Stocks Lead Decline

In a week marked by volatility in the stock market, megacap technology stocks saw a decline that spread to encompass smaller firms and financial shares. Despite signs of economic weakness, optimism over potential rate cuts was overshadowed by the overall negative trend in the market.

The S&P 500 fell nearly 1% as almost every major group within the index experienced losses. This decline came after a prolonged rally that had seen the index hit nearly 40 record highs this year. The recent surge had raised expectations of a pullback or consolidation, especially as other companies began outperforming the usual tech leaders.

Investors began shifting away from megacap stocks, which had previously been seen as a safe bet due to their consistent profits and strong balance sheets. This move was prompted by the belief that the Federal Reserve was preparing to ease back on its efforts to control inflation. As a result, money also flowed out of industrial and staples firms, leading to a broad market selloff.

Despite signals that the Fed might cut rates, the market didn’t respond as expected on Thursday. The “rotation” on Wall Street, which had seen money moving into different sectors, paused even as jobless claims indicated a cooling labor market.

Analysts like Craig Johnson at Piper Sandler noted that investors were shifting from overcrowded megacap stocks to smaller opportunities, signaling a potential broadening of the bull market. However, caution was advised, with calls for prudence in case of pullbacks at confirmed support levels amid improved breadth signals.

In late trading hours, several companies made headlines. Netflix Inc. reported adding over 8 million customers in the second quarter but gave a cautious forecast. Broadcom Inc. closed higher after news of discussions to make an artificial intelligence chip for OpenAI. Domino’s Pizza Inc. saw a decline after suspending its store growth target, while D.R. Horton Inc. jumped on solid profit margins.

Overall, the market remains uncertain as investors navigate shifting dynamics and potential economic impacts. The ongoing debate over the direction of the market and the effects of rate cuts are likely to drive further volatility in the coming weeks.