Continued Cooling For The Labor Market? – US Market Wrap

A weeklong decline in megacap technology stocks broadened Thursday to encompass small caps and financial shares as signs of economic weakness overwhelmed optimism over rate cuts.

Almost every major group in the S&P 500 fell. A rally that drove the gauge to almost 40 record highs this year spurred expectations of a pullback or at least consolidation. And those calls have grown after a wide array of companies soared in just a few days, outperforming the leaders of the bull market, big tech.

Conviction that the central bank is about to relax back on its battle to keep inflation under control has spurred a retreat from megacap stocks, which emerged throughout the Federal Reserve’s tightening cycle as a de-facto safety trade due to their consistent profitability and clean balance sheets. As a result, money had been flowing to a broader range of industrial and staples firms, for whom high finance costs were a greater constraint.

While every data point that signals the Fed is close to cutting rates would bolster that trade, it wasn’t so much the case on Thursday after a surge in jobless claims showed the US labor market continued to cool.

The S&P 500 fell to around 5,545. Megacaps were mixed, with NVIDIA up and Apple down. The Russell 2000 of smaller firms dropped about 2% after recently hitting its most-overbought level since 2017. The Dow Jones Industrial Average halted a six-day winning streak.

In late hours, Netflix Inc. extended its lead over the streaming competition, adding 8.05 million customers in the second quarter, crushing its own forecasts and those of Wall Street. In regular trading, Taiwan Semiconductor Manufacturing Co. closed with a small gain despite a bullish outlook. Domino’s Pizza Inc. fell the most since 2008 after it unexpectedly suspended its store growth target.

Treasury 10-year yields rose four basis points to 4.20%. The euro dropped on bets the European Central Bank will cut rates in September.