Market Decline Amid Concerns Over Economic Stability
The market experienced a decline as recent data raised worries about the stability of the economy.
US stocks took a hit on Monday due to new data that raised worries about the economy's well-being.
The Dow dropped by 300 points, which is a decrease of 0.8%, after falling by over 400 points earlier in the day. The S&P 500 also saw a decline of 0.3%, while the Nasdaq Composite managed to increase by 0.1%.
The Institute for Supply Management manufacturing index dropped to 48.7% in May from 49.2% in April. A reading below 50% suggests a contraction in the US manufacturing industry, while a reading above 50% indicates expansion.
José Torres, a senior economist at Interactive Brokers, mentioned in a note on Monday that today could be a significant turning point in equity markets. Investors have been optimistic about weaker data in recent months, hoping it would prompt the Fed to loosen its policies. However, now investors are reacting with fear to the soft data.
Shoppers stroll through The Village at Corte Madera in Corte Madera, California on May 30, 2024. Economists predicted a slower growth in US consumer spending for April compared to March.
Shoppers carry shopping bags while walking through The Village at Corte Madera on May 30, 2024, in Corte Madera, California. Economists expected US consumer spending to grow at a slower pace in April than it did in March.
Justin Sullivan/Getty Images
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The inflation measure preferred by the Federal Reserve did not show much improvement last month. Investors have been dealing with conflicting data showing that inflation remains high while the economy slows down. This has raised worries that the Fed will maintain higher interest rates for a longer period, causing fluctuations in the stock market. Despite this, all major stock indexes managed to secure their sixth positive month out of the last seven in May.
The latest data on inflation, as measured by the Personal Consumption Expenditures price index, revealed that prices continued to rise in March. According to the Commerce Department, PCE increased by 0.3% compared to the previous month and by 2.7% compared to the same time last year.
In other news, the most recent report on the gross domestic product (GDP) showed that the US economy grew at a slower rate in the beginning of the year than initially thought. The Commerce Department's second estimate of first-quarter GDP indicated an annualized growth rate of 1.3%, lower than the 1.6% reported in the initial estimate. This downward revision was primarily attributed to a decrease in consumer spending.
Keith Lerner, chief market strategist at Truist, believes that we are not heading towards a recession but rather going through a period of normalization.
In other news, the New York Stock Exchange announced on Monday that a technical problem causing trading disruptions for certain stocks, including a drastic drop in Berkshire Hathaway shares by 99.97%, has been fixed.
This is a developing story and will be updated.
CNN’s Matt Egan contributed to this story.
Editor's P/S:
The recent market volatility highlights the uncertainty surrounding the US economy. The disappointing ISM manufacturing index and GDP revision have raised concerns about a potential slowdown. Investors are now grappling with the dilemma of whether the Fed's tightening measures will help tame inflation without triggering a recession. The conflicting data on inflation and economic growth has made it difficult for investors to assess the true state of the economy.
Despite the market's recent struggles, it's important to remember that this is a developing story. The Fed has indicated its willingness to act aggressively to combat inflation, but it remains to be seen whether this will be enough to prevent a prolonged economic downturn. In the meantime, investors should remain vigilant and monitor the data closely for any signs of improvement or deterioration.
