On Thursday, major U.S. stock indexes experienced declines, attributed primarily to a notable drop in Tesla’s shares following statements from President Trump regarding government contracts and subsidies. The S&P 500 Index closed down 0.53%, the Dow Jones Industrial Average fell 0.25%, and the Nasdaq 100 retreated by 0.80%. This trend persisted in pre-market trading for the following session, with June E-mini S&P futures showing a decrease of 0.52% and June E-mini Nasdaq futures down 0.84%.
Earlier in the trading day, market sentiment had shifted positively when reports indicated that trade tensions between the United States and China might ease. However, optimism was quickly overshadowed by Tesla’s share value plummeting by over 14%, a movement that significantly influenced technology stocks. The decline followed President Trump’s remarks about scaling back government support for Elon Musk’s companies, prompting a broader sell-off in tech shares.
In addition to the specific pressures on tech stocks, broader economic indicators also dampened market enthusiasm. Weekly jobless claims rose unexpectedly to a seven-and-a-half-month high of 247,000, suggesting a weakening labor market and complicating the Federal Reserve’s policy outlook. Furthermore, the downward revision of Q1 nonfarm productivity to a negative 1.5% from a previously reported minus 0.8%, along with an upward adjustment of unit labor costs to 6.6% from 5.7%, introduced additional headwinds for investor sentiment.
Investors were also contending with rising bond yields, with the yield on the 10-year Treasury note increasing by 4 basis points to 4.40%. This rise followed a rebound from a four-week low of 4.31%. The bond market’s movements can heavily influence stock performance, particularly when higher yields signal concerns regarding inflation and economic growth.
Earlier in the week, there had been some optimism when President Trump and Chinese President Xi Jinping spoke by phone and agreed to continue discussions on trade. President Xi called for the United States to remove “negative” measures that have heightened tensions, indicating a willingness to alleviate concerns regarding trade imbalances. Additionally, U.S. trade data showed that the trade deficit in April narrowed to a 20-month low of $61.6 billion, surpassing expectations and providing a glimmer of optimism for the second quarter GDP outlook.
Amid these developments, Fed officials expressed concern over the sluggish pace of disinflation and the potential impacts of higher tariffs on inflation rates into 2025. Fed Governor Kugler supported keeping interest rates steady if inflationary pressures remain, emphasizing the complexity of the current economic landscape. Philadelphia Fed President Patrick Harker echoed this sentiment, advocating for a cautious approach in determining future policy changes, especially as the market digests the implications of President Trump’s economic and regulatory policies.
Analysts are closely monitoring upcoming employment figures, including the anticipated release of May’s nonfarm payrolls, which are expected to show an addition of 125,000 jobs. The unemployment rate is projected to remain unchanged at 4.2%, while average hourly earnings are anticipated to rise by 0.3% month-over-month and 3.7% year-over-year.
International markets showed mixed results on Thursday. The Euro Stoxx 50 closed slightly higher by 0.10%, while China’s Shanghai Composite index climbed 0.23%, reflecting domestic market recovery. Conversely, Japan’s Nikkei 225 decreased by 0.51%, illustrating regionally diverse economic dynamics.
In the realm of interest rates, September 10-year T-notes concluded the day lower as investors reacted to initial jobless claims data, reinforcing concerns over labor market weaknesses and potential implications for Fed policy. T-notes had initially seen an uptick in value as the jobless claims report raised expectations for a dovish Fed stance. However, sentiments shifted as risk appetite improved due to talks between U.S. and Chinese leaders.
European bond yields also saw increases, with the 10-year German bund surging 5.5 basis points to 2.582%. The European Central Bank’s recent decision to cut the deposit facility rate to 2.00% from 2.25% reflected ongoing concerns regarding eurozone inflation and growth, although ECB President Lagarde noted the potential for further growth revisions based on a stronger labor market in the region.
Domestically, individual stock performances varied significantly. Advanced Micro Devices saw a decline of over 2% as semiconductor stocks faced pressure. Other notable losers included Brown-Forman, which sank by 17% after disappointing quarterly sales figures, and PVH Corp, which cut its earnings forecast, further instigating a sell-off. In contrast, MongoDB shares surged over 12% after reporting a much stronger-than-expected earnings metric, illustrating the volatility that characterizes the current equities market.
As market participants brace for future developments, including potential revisions in trade policy and employment statistics, investors remain in a state of heightened awareness, navigating the complexities posed by both domestic and international economic indicators. Factors such as inflation, labor market trends, and geopolitical tensions will continue to steer market sentiment in the coming days, making vigilance essential for those engaged in financial markets.