FX.co ★ U.S. Stocks Pull Back Sharply After Early Move To The Upside

Stocks initially surged on Thursday but faced pressure as the session progressed, with major indexes retreating from their session highs into negative territory.

As the trading day continued, the major averages further declined, hitting new session lows. The Dow fell 392.65 points, or 1.0 percent, to 40,450.14. The Nasdaq dropped 160.03 points, or 0.9 percent, to 17,439.37, and the S&P 500 decreased 37.76 points, or 0.7 percent, to 5,484.54.

The downturn on Wall Street followed some disappointing economic data that overshadowed earlier optimism about a potential near-term interest rate cut by the Federal Reserve. The Institute for Supply Management (ISM) reported that U.S. manufacturing activity unexpectedly contracted at an accelerated rate in July.

The ISM's manufacturing PMI fell to 46.8 in July from 48.5 in June, indicating contraction with a reading below 50. Economists had anticipated the index to slightly increase to 48.8 percent. This larger-than-expected decline pushed the PMI to its lowest level since November 2023, when it reached 46.6.

"Demand remains subdued as companies hesitate to invest in capital and inventory due to current federal monetary policy and other conditions," said Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee. He added, "Production execution was down compared to June, likely contributing to revenue declines and increased pressure on profitability."

Early in the session, stocks saw gains from upbeat earnings reports, notably from Meta Platforms (META), the parent company of Facebook. Meta's shares surged 6.2 percent after the company reported better-than-expected second-quarter results and provided positive guidance.

Restaurant chain Shake Shack (SHAK) also experienced substantial gains, as its second-quarter revenues exceeded analyst estimates. Conversely, shares of Moderna (MRNA) plummeted 18.5 percent after the drugmaker reported strong second-quarter results but lowered its full-year sales guidance.

In sector news, semiconductor stocks pulled back significantly following a previous rally, with the Philadelphia Semiconductor Index dropping 3.7 percent. Oil service stocks also faced considerable weakness, as evidenced by a 3.6 percent decline in the Philadelphia Oil Service Index. Airline stocks declined markedly, dragging the NYSE Arca Airline Index down by 3.4 percent.

Other sectors including steel, banking, and computer hardware also showed notable weakness, while telecom stocks were among the few groups that resisted the downtrend.

In international markets, Asia-Pacific stock markets had a mixed performance on Thursday. Japan's Nikkei 225 Index plunged 2.5 percent and China's Shanghai Composite Index dipped 0.2 percent, while South Korea's Kospi rose 0.3 percent.

European stocks saw sharp declines. The U.K.'s FTSE 100 Index dropped 0.9 percent, and the French CAC 40 Index and the German DAX Index were down 2.0 percent and 2.1 percent, respectively.

In the bond market, U.S. treasuries moved sharply higher amid renewed economic concerns. The yield on the benchmark ten-year note, which moves inversely to its price, fell 13.3 basis points to 3.971 percent.