4/2/2024

Dow and S&P close lower after PMI data

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Key points:

  • The drop in the Dow Jones and S&P 500 indices occurred amid investor concerns about the timing of the Fed’s rate cut.
  • Strong PMI data (50.3) indicates a possible recovery in the manufacturing sector.
  • The market estimates the probability of a rate cut in June by 58%.

Last Monday saw declines in the Dow Jones and S&P 500 indices. This occurred amid investor concerns about the timing of interest rate cuts by the Federal Reserve. Unexpectedly strong data on the health of the manufacturing sector triggered a rise in Treasury yields, which negatively affected investor sentiment.

The Dow Jones Industrial Average fell 240.52 points, or 0.60%, to 39,566.85. The S&P 500 fell 10.58 points, or 0.20%, to 5,243.77. The Nasdaq Composite Index added 17.37 points, or 0.11%, to 16,396.83.

Strong PMI dampened investor optimism

The Institute for Supply Management (ISM) released data showing that the Manufacturing Purchasing Index (PMI) rose to 50.3 last month. This is the highest reading since September 2022 and the first reading above 50, signaling a possible recovery in the manufacturing sector, which had previously struggled due to rising interest rates.

The ISM data pushed the 10-year and two-year Treasury yields to their highest in two weeks.

According to CME’s FedWatch tool, the US interest rate futures market is estimating the likelihood of a Fed rate cut in June at 58%, down slightly from 64% the week before.

Some key Fed officials, such as Gov. Christopher Waller and Atlanta Fed President Raphael Bostic, have said they would prefer fewer than three rate cuts this year.

Thirteen of the Fed’s 19 members will make statements this week, giving investors a clearer picture of the US central bank’s views on monetary policy moving forward.

In addition, the monthly US employment report will be published on Friday, which could also have an impact on market sentiment.

Stocks were mostly lower, with some posting modest gains

The Nasdaq and S&P 500 technology sectors posted modest gains in the trading session, while most S&P 500 sectors posted losses. Real estate, healthcare and utilities were among the top decliners. The energy sector, on the other hand, grew following rising crude oil prices.

AT&T shares fell 0.6% after the telecom giant announced a major data breach affecting both current and former customers.

Trading volume on US exchanges was 10.22 billion shares, below the average of 12 billion over the last 20 trading days.

The S&P 500 index hit 36 52-week highs and 2 lows. The Nasdaq Composite Index recorded 97 new highs and 74 new lows.

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