Major Indices Drop Amid Disappointing Earnings and Job Growth

The VIX has climbed above 21. For options traders, that brings challenges and opportunities.

• Stocks dropped significantly because of weak economic data and disappointing earnings, signaling investor fear the economy is slowing.

• While job growth slowed and unemployment rose, job creation in core sectors like healthcare and construction remained strong, offering some economic optimism.

• Major companies like Apple, Amazon and Intel reported mixed earnings, with significant market reactions highlighting investor sensitivity to corporate performance amid economic uncertainties.

Yesterday began with a hint of optimism for stocks, but by the end of the day that optimism had faded along with equity prices. The S&P 500 experienced its largest intraday swing since November 2022, closing down 1.4%. The Nasdaq Composite fell 2.3%, and even the Russell 2000 and Dow Jones Industrial Average, which have recently shown resilience, dropped 3.23% and 1.2%, respectively. The catalyst was not just earnings, but also weakening economic data.

The economic data, though less discussed, raised concerns. Declining construction spending hinted at weakening infrastructure investment, a worry compounded by a weaker-than-expected July employment report. Economists had forecasted 176,000 new jobs, but only 114,000 were added. Additionally, the unemployment rate rose from 4.1% to 4.3%. However, there were positives in job creation in health care and construction, sectors critical for economic health. These positives, though, were overshadowed by the overall weak jobs number, leaving active investors uncertain about how to interpret the report.

Depressing earnings reports

Earnings reports from major companies added to the market's turbulence. Apple (AAPL) reported a decline in iPhone revenue for the second consecutive quarter, with China revenue down over 6%. But Apple remains optimistic about a major iPhone refresh cycle. Amazon's weaker-than-expected revenue forecast and increased capital spending on data centers indicated a focus on AI with unclear profitability, leading to an 8% drop in premarket trading. Intel (INTC) delivered the worst report, missing revenue expectations and announcing significant layoffs and dividend suspension to cut expenses, causing a 20% after-hours stock drop.

In contrast, Coinbase (COIN) saw a rise in shares after beating revenue expectations, thanks to increased trading volumes amid easing regulatory burdens. In the oil sector, Exxon Mobil (XON) reported record production, boosting earnings by $500 million, while Chevron (CVX) earnings fell because of lower refining margins.

What earnings say about the economy

The broader market focus has shifted from earnings to what these earnings indicate about the economy. The recent interest rate cut by the Bank of England and significant drops in bond yields suggest a slowing global economy. Investors are now interpreting potential rate cuts as signs of economic weakness instead of opportunities for stock gains.

Today's focus is on how markets interpret the latest jobs numbers. Despite the slowdown in job growth, the areas of hiring are positive indicators. Volatility remains a key concern, with the VIX rising above 21. For options traders, this means higher premiums, presenting both challenges and opportunities. For stock investors, this volatility may offer chances to buy undervalued stocks. It's crucial to stick to long-term investment plans amid the current market fluctuations.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan 

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