By Lewis Krauskopf
NEW YORK (Reuters) – Economic concerns are once again showing up on Wall Street’s radar, as worries grow that months of elevated interest rates may be starting to hurt U.S. growth.
For months, investors had been heartened by cooling inflation and gradually slowing employment, believing they bolstered the case for the Fed to begin cutting interest rates.
Now that a September rate cut has come into view following a Fed meeting earlier this week, investors are worried that the central bank may have left rates at restrictive levels for too long, allowing them to take a toll on economic growth.
Evidence of such a shift in thinking came on Thursday, when data showing weakness in the labor market and manufacturing sector sparked a sharp selloff in U.S. equities, with investors dumping everything from chip stocks to industrials while piling into defensive plays. Richly valued tech stocks tumbled, extending losses in the Nasdaq Composite to nearly 8% from a record closing high reached in July.
“The narrative has been that rate cuts are just because inflation is coming closer to the target while everything else remains pretty solid,” said Angelo Kourkafas, senior investment strategist at Edward Jones. “But now there are some cracks.”
The concerns put a spotlight on upcoming releases – such as Friday’s employment data and an inflation report later this month – that could exacerbate worries if they show further signs of weakness.
Next week brings earnings from industrial bellwether Caterpillar and media and entertainment giant Walt Disney, which will give more insight into the health of the consumer and manufacturing, as well as reports from healthcare heavyweights such as weight-loss drugmaker Eli Lilly.
Bets in the futures markets on Thursday suggested growing unease about the economy. Fed fund futures reflected traders pricing in an over 25% chance of a 50-basis point cut at the central bank’s September meeting, double the odds from a day before, according to CME FedWatch. Futures priced a total of 85 basis points in rate cuts in 2024, compared to just…
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