NEW YORK (AP) — Most of Wall Street is slumping with bond yields on Thursday after more signals suggested the U.S. economy's growth is slowing.
The S&P 500 was virtually unchanged in morning trading, after giving up an earlier morning gain of 0.8%. The Dow Jones Industrial Average was down 190 points, or 0.5%, as of 10:25 a.m. Eastern time, and the Nasdaq composite was 0.2% higher.
Trading was mixed as the 10-year Treasury yield sank below 4%, back to where it was in February, following softer-than-expected reports on the job market and manufacturing. Such data, along with a report showing improving productivity for U.S. workers, likely give more leeway for the Federal Reserve to cut interest rates soon. A day earlier, yields sank after Fed Chair Jerome Powell gave the clearest indication yet that inflation may have slowed enough for an easing of rates to begin in September.
But the data also raise worries that the U.S. economy could buckle under the weight of rates that the Fed has held at a two-decade high for roughly a year. Such high rates have made it more expensive to borrow to buy a house, car or anything on credit cards.
Stocks of companies whose profits are most closely tied to the economy's strength had the sharpest tumbles following the report. Energy stocks in the S&P 500 fell 1.3%, for example, while industrial and financial companies also weakened more than the rest of the market.
The small stocks in the Russell 2000 dropped 1.2%. They had soared last month on hopes that the economy would remain solid even as interest rates come down to give them a potent cocktail.
Helping to support the market was Meta Platforms and other stocks that reported better results for the spring than expected. Meta, the company behind Facebook and Instagram, was the biggest single force pushing upward on the S&P 500 and rose 8.8% after reporting profit and revenue that topped analysts’ expectations.
Uncertainty was high heading into its report after other members of the highly influential group of stocks known as the “ Magnificent Seven ” had underwhelmed investors. This handful of Big Tech stocks drove the S&P 500 to dozens of records this year, in part on the frenzy around artificial-intelligence technology, but their momentum turned last month on worries investors had taken their prices too high and expectations had grown too difficult.
Some of the concern has centered around how much companies are investing in AI, and how quickly they will see profits because of it. Meta Platforms said late Wednesday that it expects “significant” growth in spending and investment next year on AI research and product development.
While analysts said such spending will have an impact on its near-term results, Meta Platforms highlighted how it’s already seeing some benefits from it, including traction with its AI glasses.
Other technology companies, though, got a less welcome reception from investors. U.K. chip giant ARM Holdings delivered better profit and revenue for the latest quarter than expected, for example. But its U.S.-listed shares nevertheless tumbled 13.2%. It did not increase its forecasts for revenue and profit this fiscal year, despite its strong numbers to start it.
Amazon and Apple, which like Meta Platforms are also members of the “Magnificent Seven,” will report their latest results after trading finishes for the day. Apple slipped 0.1%, and Amazon climbed 0.8%.
In the bond market, the yield on the 10-year Treasury slumped to 3.97% from 4.04% late Wednesday and from 4.70% in April.
More U.S. workers filed for unemployment benefits last week, an indication that layoffs may be rising. While that’s bad news for workers, it could help bring the job market into the type of Goldilocks environment that Wall Street is hoping for: not so hot that it puts upward pressure on inflation but not so cold that it leads to a recession.
Another report suggested productivity for U.S. workers improved by more during the spring than economists expected. Further progress there could also prevent upward pressure on inflation.
Yields took another sharp leg lower after the Institute for Supply Management said the contraction for U.S. manufacturing unexpectedly deepened. Economists were looking for a slight improvement, but manufacturing has been one of the hardest-hit parts of the U.S. economy by high rates.
In perhaps an even worse signal for markets, the report also said prices were accelerating at a faster pace in July than June.
Traders are still nevertheless convinced that the Federal Reserve will cut its main interest rate in September, which would take it down from a two-decade high. The question now is how many times it may cut this year and next.
Across the Atlantic, the Bank of England cut interest rates for the first time since the onset of the COVID-19 pandemic in early 2020. Inflation in the U.K overall had already hit the bank’s target of 2%, something the U.S. central bank is still reaching for.
The FTSE 100 in London rose 0.3%, but stock indexes were weaker across much of Europe and Asia.
Japan's Nikkei 225 fell 2.5%. A day earlier, the Bank of Japan raised interest rates, a move that helped push up the value of the yen against the U.S. dollar. Such swings can hurt the profits of exporters, and Toyota's stock tumbled 8.5% in Tokyo Thursday even though it reported a rise in profit.
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AP Business Writers Yuri Kageyama and Matt Ott contributed.
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