5/1/2024

Consumer confidence falls – stocks decline

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Key points:

  • Shares of most of the Magnificent Seven companies (Tesla, Alphabet, Nvidia, Microsoft, Amazon) closed in the red.
  • Rising labor costs in the US could lead to higher inflation.
  • Most investors expect the Fed to leave interest rates unchanged at the meeting.

US stock markets ended the last session lower. Investors were wary of incoming economic data, which signaled rising labor costs and weakening consumer confidence. Most notably, these signals came ahead of a key Federal Reserve meeting at which the issue of raising interest rates will be decided.

The S&P 500 fell 79.92 points, or 1.56%, to close at 5,036.25. The Nasdaq Composite fell 325.26 points, or 2.00%. up to 15,664.13. The Dow Jones Industrial Average lost 574.08 points, or 1.47%, to 37,823.57.

Warning signs ahead of Fed meeting

The day before, data was published indicating increased inflationary pressure in the United States. The country’s labor costs rose 1.2% last quarter, beating forecasts, according to the report. This suggests that US companies are being forced to pay their workers more and more, which could lead to higher prices for goods and services and, consequently, higher inflation.

In addition, a survey of consumers showed that their confidence in the US economy in April 2024 fell to its lowest level in more than a year and a half. This could lead to a reduction in consumer spending, which would also have a negative impact on the economy.

It’s worth noting that these data were released the day before the Federal Open Market Committee meeting. Most investors expect the Fed to leave interest rates unchanged at this meeting. Despite rising inflation expectations, experts believe that the Fed will not change its course. They explain this by saying that the US economy is still growing and the labor market remains strong.

Tech stocks closed in the red

Shares of most of the Magnificent Seven companies ended the day below their values, including Tesla, Alphabet, Nvidia, Microsoft and Amazon.

Recall that the Magnificent Seven, fueled by the artificial intelligence boom, accounted for more than 60% of the S&P’s total profits last year. But as persistent inflation raises expectations that the Fed will keep U.S. borrowing costs at a 23-year high of 5.25%-5.5% or even rise again, bets are rising on the long-term returns from major tech companies’ big investments in artificial intelligence.

Additionally, the sharp decline in shares of Facebook owner Meta Platforms in April underscored the risks of hopes for stellar tech returns as rates remain high. Until recently, markets expected the Fed to begin cutting rates in June.

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