U.S. manufacturing activity in July fell to 46.8%, a decline of 1.7 percentage points from June.
Unemployment insurance claims increased to 249,000, up by 14,000 claims.
Announcements of layoffs in July reached a 20-year high.
The 10-year Treasury yield fell below 4% for the first time since February.
The Fed hinted at a 0.25 percentage point rate cut in September.
The July jobs report is expected to show an increase of 185,000 jobs (compared to 206,000 in the previous month).
Opinion
The current market environment sends very concerning signals. The expectation of rate cuts based on an economic slowdown is extremely risky, especially when both manufacturing weakness and a softening labor market are evident—suggesting that the recession could be more severe than anticipated. Moreover, the Fed’s delayed response might further accelerate the downturn.
Core Sell Point
With economic indicators deteriorating, the Fed’s tardy approach to rate cuts could deepen the recession, increasing the risk of further declines in the stock market.
This year, the stock market has shown a paradoxical trend. As economic indicators worsen, a perverse view emerged that bad news could be good news for the market, since it might prompt the Federal Reserve to cut interest rates. This idea made some sense when inflation—after a long period—had become the primary market bogeyman amid a slowing economy. However, after the Fed recently decided to keep its short-term rate at the highest level in 20 years, investors are now expressing anxiety over a series of disappointing economic data points.
July U.S. Manufacturing Activity: The ISM index dropped 1.7 percentage points from June to 46.8%, signaling an economic contraction (readings below 50% indicate contraction).
Unemployment Insurance Claims: First-time filings surged to 249,000 last week—14,000 above estimates and the highest level since August 2023.
Layoffs: Announced layoffs in July reached a 20-year high, intensifying concerns about a weakening labor market.
10-Year Treasury Yield: Fell below 4% for the first time since February.
Stock Market Reaction: Despite the lower yields, fears of a recession have driven the Dow Jones Industrial Average sharply lower, with cyclical stocks like JPMorgan Chase and Caterpillar taking significant hits.
Expert Insights:
Chris Rupkey, FWDBONDS Chief Economist, stated,
“The manufacturing and unemployment data are clearly indicating a downturn, if not a recession, this morning. The market is unsure whether to laugh or cry because, despite the potential for three Fed rate cuts this year and 10-year yields falling below 4%, the winds of recession are blowing hard according to manufacturing purchasing managers.”
Adam Crisafulli of Vital Knowledge added,
“The ISM shortfall is the latest sign of cooling domestic growth, and it further suggests that the Fed should have begun its easing cycle yesterday instead of waiting until September.”
Looking ahead, the upcoming July jobs report is expected to be a crucial indicator of the economic slowdown. Dow Jones estimates predict that job gains will slow from 206,000 in the previous month to 185,000. Depending on how future economic data influences the Fed’s policy decisions, market volatility could increase even further.
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