In a dramatic turn of events, the Dow Jones Industrial Average plunged over 500 points on Thursday, reflecting a significant shift in investor sentiment. The sell-off, which also impacted the S&P 500 and Nasdaq Composite, was driven by profit-taking and a retreat from high-flying technology stocks. Despite broader market optimism fuelled by potential Federal Reserve rate cuts, nearly all sectors of the S&P 500 traded lower, highlighting widespread uncertainty. As volatility spiked and investors reevaluated their positions, the markets navigated a day of heightened caution and repositioning.

Key Takeaways:

  • Dow Jones Slides Over 500 Points: The Dow Jones Industrial Average fell by 533.06 points, or 1.29%, to close at 40,665.02. This significant drop underscores the heavy profit-taking and repositioning by investors, particularly in high-flying technology names. The shift in market sentiment reflects growing anticipation of a potential September interest rate cut from the Federal Reserve, which has spurred optimism for small-cap and cyclical stocks.
  • S&P 500 and Nasdaq Composite Also Decline: The S&P 500 dropped 0.78% to end at 5,544.59, while the Nasdaq Composite lost 0.70%, closing at 17,871.22. This sell-off comes on the heels of Wednesday’s session, where the Nasdaq experienced its worst daily performance since December 2022, marking the first time since 2001 it posted a loss exceeding 2.5%. The broader nature of Thursday’s decline saw ten of the 11 sectors in the S&P 500 trading lower, and nine out of every 10 Dow members also saw losses, indicating widespread investor caution.
  • Russell 2000 Retreats Despite Recent Gains: The small-cap focused Russell 2000, which had seen a 3.5% increase over the last five trading days, dropped about 1.9% on Thursday. This index’s performance highlights the market’s volatility and the investor sentiment shift away from technology stocks. 
  • VIX Jumps to Highest Close Since April: The CBOE Volatility Index (VIX), a popular measure of market volatility, surged approximately 9% to around 16 on Thursday, marking its highest close since April. The VIX had started the week around the 12 handle, and its rise signifies increased fear and uncertainty among investors. Despite this jump, the VIX remains below its long-term historical average of 21, suggesting that while anxiety is rising, it is not yet at extreme levels. 
  • European Markets Close Slightly Lower: The pan-European Stoxx 600 shed 0.16%, driven by a 1.8% decline in technology stocks, mirroring the tech sell-off in the US Despite the overall drop, the FTSE 100 managed to rise by 0.21% while the CAC 40 edged higher by 0.2%, breaking a three-session losing streak. The European Central Bank’s decision to keep interest rates unchanged was widely expected, as it follows a rate cut in June. Autos led European gains, with shares of Volvo Cars jumping 11% after reporting a record core operating profit in Q2. 
  • Asia-Pacific Markets See Mixed Results: Japan’s Nikkei 225 fell 2.36% to 40,126.35, with significant drops in chip-related stocks following reports of more severe U.S. export restrictions and comments from former US President Donald Trump raising geopolitical tensions. The Topix slid 1.6% to 2,868.63, with notable declines in shares of Tokyo Electron, Advantest, and Organo. South Korea’s Kospi dipped 0.67% to 2,824.35, while the small-cap Kosdaq lost 0.84% to 822.48. In contrast, Hong Kong’s Hang Seng Index climbed 0.64%, and China’s CSI 300 rose 0.55% to 3,520.93, reflecting some regional optimism. Japan’s trade data for June showed a year-on-year export increase of 5.4% and import growth of 3.2%, both missing Reuters expectations and indicating a slowdown from May.
  • US Weekly Jobless Claims Increase: New applications for unemployment benefits rose by 20,000 to a seasonally adjusted 243,000 for the week ended July 13. Unadjusted claims jumped by 36,824 to 279,032, with notable increases in states like Texas, California, Georgia, Missouri, and New York. The unemployment rate rose to a 2.5-year high of 4.1% in June, with nonfarm payrolls increasing by 206,000 jobs, indicating a cooling labour market.
  • Oil Prices Hold Gains Amid Falling Inventories: US crude oil futures for August held steady at $82.82 per barrel, and Brent September contracts rose to $85.11 per barrel. The sustained prices follow a 2.6% jump in the previous session and three consecutive weeks of declining crude inventories. US commercial crude inventories fell by 4.9 million barrels last week, while gasoline stocks rose by 3.3 million barrels, reflecting mixed signals in the energy market. 

FX Today:

  • Gold Price Slips Beneath $2,450 Despite Growing Fed Rate Cut Speculation: Gold prices continued to drop on Thursday, trading at $2,443 per troy ounce with losses of 0.20%, as speculation grew that the Federal Reserve would lower borrowing costs at the September meeting. Elevated US Treasury yields and a recovering Greenback have put downward pressure on gold. In the short term, if XAU/USD achieves a daily close below $2,450, it could pave the way to challenge $2,400. Further losses could drive the pair to $2,392, followed by the psychological $2,350 mark. Conversely, if XAU/USD conquers $2,490, it could print a new all-time high of $2,500.
  • GBP/USD Slides Below 1.3000 Despite Solid UK Data: The Pound Sterling reversed its course on Thursday against the Greenback, dropping below the 1.2950 figure despite solid UK economic data. Elevated US Treasury yields and a strong US Dollar pushed the GBP/USD to trade with more than 0.20% losses. On further weakness, the first demand zone would be at 1.2894, followed by 1.2861. Subsequent support levels include 1.2817. If buyers reclaim 1.3000, resistance would first be at the yearly peak of 1.3044, ahead of testing 1.3100. Further strength could see the pair targeting 1.3142, last year’s high.
  • EUR/USD Interim Support Emerges Around 1.0900: The EUR/USD pair is expected to face the next upward resistance at 1.0948 followed by 1.0981 and the psychological 1.1000 level. If bears retake control, the pair may target the 200-day SMA at 1.0810 before sliding to the June low of 1.0666. Losing the May low of 1.0649 would lead to the 2024 bottom of 1.0601. Despite some loss of upside momentum, the larger picture indicates potential gains if the 200-day SMA is convincingly surpassed. Initial support levels are at the 55-SMA at 1.0872, followed by the 200-SMA at 1.0793, and then 1.0709.
  • Canadian Dollar Gives a Mixed Thursday Performance: The CAD remained sideways, with USD/CAD churning within reach of the 1.3700 handle. CAD bidders continued to defend the line, but bullish pressure under the USD kept the pair elevated. Intraday price action found a floor at the 200-hour EMA at 1.3663, while daily candles suggested a bullish recovery after bids bottomed out near the 200-day EMA at 1.3595 last week. The pair continues to wrestle with the 1.3600 level, indicating potential for short-term consolidation.
  • NZD/JPY Pair Rebounds as Sellers Take a Breather: The NZD/JPY pair recorded a slight upsurge, landing at 95.15 during Thursday’s session. Despite this rebound, the pair accumulated approximately 1.50% losses over the week, reflecting a persistently negative outlook. Immediate support levels are now spotted lower at 94.50 and the crucial level at 94.00. A descent below these levels could confirm short-term bearish dominance. Resistances are now at the previous support levels of 95.50 and 96.00.

Market Movers:

  • D.R. Horton Surges After Strong Q3 Results: D.R. Horton saw its shares jump 10% following the release of its fiscal third-quarter results, which reported earnings of $4.10 per share on revenue of $9.97 billion. These figures significantly surpassed Wall Street expectations of $3.75 per share on revenue of $9.61 billion. The homebuilder’s announcement of a $4 billion share repurchase program further boosted investor confidence.
  • Domino’s Pizza Plummets on Mixed Q2 Results: Domino’s Pizza’s shares fell more than 13% after posting mixed second-quarter results. The company reported per-share earnings of $4.03, beating the expected $3.68. However, revenue matched estimates at $1.1 billion, and U.S. comparable store sales grew slightly less than forecast, raising concerns about its domestic performance.
  • Beyond Meat Drops Amid Restructuring Talks: Beyond Meat’s stock declined over 10% following a report by The Wall Street Journal that the company has begun discussions with bondholders about restructuring its balance sheet. This news highlights the financial challenges and potential liquidity issues faced by the alternative meat producer.
  • Infosys Pops on Better-Than-Expected Q1 Numbers: US-listed shares of Infosys rose more than 8% after the company reported fiscal first-quarter results that exceeded expectations. Additionally, Infosys raised its full-year revenue growth outlook, reflecting strong business momentum and increased market demand for its digital services.
  • United Airlines Falls Despite Profit Jump: United Airlines’ stock fell over 1% despite a 23% increase in second-quarter profit, driven by strong travel demand. The decline came as the airline’s third-quarter earnings forecast, with an expected adjusted earnings range of $2.75 to $3.25 per share, fell short of the $3.44 anticipated by analysts.
  • Warner Bros. Discovery Moves Higher on Strategic Options: Warner Bros. Discovery’s stock rose 2.4% following a Financial Times report that the company is exploring options to boost its share price. Strategies under consideration include spinning off its streaming and movie studio businesses, aiming to unlock shareholder value.

The significant sell-off across major indexes highlighted the volatile nature of the current market environment. The Dow‘s steep decline, alongside notable drops in the S&P 500 and Nasdaq, underscored the universal impact of profit-taking and shifting investor sentiment, particularly away from high-flying tech stocks. The rise in the VIX to its highest close since April further highlighted the growing uncertainty and fear among investors. Despite these challenges, sectors like autos in Europe showed resilience, and some companies such as D.R. Horton and Infosys posted strong earnings that boosted their shares. As markets continue to navigate through economic indicators and geopolitical tensions, the overall sentiment remains cautious with a watchful eye on future developments.