The US stock market saw a significant slump Thursday amid speculations the Federal Reserve could cut its benchmark rates in September.
The S&P 500 slid 0.78% on Thursday, closing at 5,544.59 from the previous day's 5,588.27. The Dow Jones Industrial Average also saw a decline of 1.29% or 533.06 points, closing at 40,665.02 from the previous day's 41,198.08.
The recent slump is caused by growing anticipation of a possible interest rate cut of between 5% to 5.25% from the Fed in September as inflation levels are inching closer to the agency's target of 2%. Additionally, some investors believe there are 6.7% odds that the rate will be cut at the end of July by at least half a percentage point.
Other Factors That Affected the Recent Market Slump
Apart from the potential benchmark rate cuts, the recent slump in the stock markets also came after Bloomberg reported that the Biden administration is considering severe trade restrictions against China if companies such as Tokyo Electron Ltd. and ASML Holding NV continue to offer Beijing access to advanced semiconductor technology. The outlet also noted that the US is currently presenting the idea to officials in Tokyo and the Hague, citing people with knowledge of the discussions.
The report sent microchip stocks in the Philadelphia SE Semiconductor Index down 6.8%, closing at 5,408.71. That is the biggest one-day drop recorded since March 2020.
Furthermore, a pullback in the "Magnificent 7" group of momentum stocks, which are led by Nvidia and Apple, also dragged the technology-heavy Nasdaq Composite by 0.70%, closing at 17,871.22. It is Nasdaq's worst daily performance since December 2022. It is also the first session since 2001 where Nasdaw posted a loss exceeding 2.5%.
Only the Russell 2000 saw a jump of 3.5% over the last five trading days. On the week, the market popped by more than 2%.
As of Thursday, the Dow is the only one of the three major market indexes to finish the week up, gaining 1% in the week to date.
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