Stocks appeared poised to build on Wednesday's Fed-fueled gains, opening higher across the board Thursday. However, the main indexes quickly swung into negative territory following a round of disappointing economic data.
Specifically, the Institute for Supply Management said its Manufacturing Purchasing Managers Index (PMI) fell to 46.8% in July from 48.5% in June. Readings below 50% indicate contraction – and this was the fourth straight month the index came in below the key level.
"U.S. manufacturing activity entered deeper into contraction," said Timothy Fiore, chair of ISM's Manufacturing Business Survey Committee. "Demand was weak again, output declined, and inputs stayed generally accommodative."
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Meanwhile, U.S. construction spending fell 0.3% in June, missing economists' expectations for a 0.2% rise. The May figure was revised lower to a decline of 0.4% vs the previously reported 0.1% drop.
"The short-lived satisfaction of Fed Chief Powell communicating decent odds of a September rate cut has turned sour as investors are now panicking that the central bank isn't trimming soon enough," says José Torres, senior economist at Interactive Brokers.
In addition to the weak economic data, Torres says that following this morning's rate cut from the Bank of England (BoE), "market players are also worried that the U.S. is among the last to begin accommodating monetary policy."
According to CME Group's FedWatch Tool, futures traders are pricing in an 82% chance the central bank will cut rates by a quarter-percentage point in September.
Meta goes all in on AI
In earnings news, Meta Platforms (META) stock soared 4.8% after the Facebook parent topped expectations for its second quarter. The company also raised the low end of its full-year capital expenditures outlook and said it expects "significant capex growth in 2025" to support artificial intelligence (AI) research and product development efforts.
"We think greater AI integration and product enhancements not only support user engagement but also capture greater interest from 18 to 29-year-olds – an area where META has lagged peers," says CFRA Research analyst Angelo Zino, who reiterated a Buy rating on the stock.
The analyst also sees "growth prospects tied to expanding generative AI features," and improvements in rankings and recommendations.
Carvana rallies after earnings
Elsewhere, Carvana (CVNA) stock jumped 10.1% after the online auto retailer reported a surprise profit for its second quarter. The company's revenue also came in higher than expected.
It wasn't even two years ago that Carvana appeared to be on the brink of bankruptcy. But in 2024, the consumer discretionary stock has been one of the best performers on the price charts, up more than 200%.
Arm stock sinks on soft outlook
On the negative side of the ledger was Arm Holdings (ARM), which plunged 15.7% after the chipmaker reported earnings. While Arm disclosed higher-than-expected fiscal first-quarter earnings of 40 cents per share on revenue of $939 million, its full-year outlook came in soft vs what Wall Street expects.
This is the first time Arm hasn't raised its outlook after earnings, says Needham analyst Charles Shi (Hold), which "could be seen as a negative for the stock that trades at a sky-high valuation."
As for the main indexes, the Dow Jones Industrial Average finished the day down 1.2% at 40,347, the S&P 500 fell 1.4% to 5,446, and the Nasdaq Composite plunged 2.3% to 17,194.
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