The tech-heavy Nasdaq edged higher in choppy trading on Tuesday supported by megacap growth stocks on cautious hopes that the Federal Reserve will not be as aggressive in raising rates following weak U.S. business activity data.
Private-sector business activity in the United States contracted for a second straight month in August, with particular softness in the services sector as demand weakened in the face of inflation and tighter financial conditions.
The S&P Global flash composite purchasing managers index (PMI) for August dropped to 45 this month, the lowest since February 2021, from a final reading of 47.7 in July. A reading below 50 indicates a contraction in activity.
“A weaker economic news fueled a bit of a rebound in the stock market, especially in Nasdaq stocks,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management.
“It leads investors, especially algorithms, to believe that the Fed won’t be as aggressive raising interest rates and so you get a little bit of a recovery instead of selling pressure that we saw early this morning.”
Supporting some megacap growth stocks, U.S. Treasury yields slid from multi-week highs, with the benchmark 10-year yield retreating below 3% after the PMI numbers.
High-growth stocks such as Nvidia Corp and Tesla Inc rose more than 1% each, while semiconductor stocks gained 1.4% in mid-day trading.
Cutting back on some of the gains, Zoom Video Communications Inc tumbled 14.8% after the company cut its annual profit and revenue forecasts.
After a rough start to the year, markets rallied since mid-June on hopes inflation has peaked but the summer rally snapped last week on renewed fears around an aggressive monetary policy tightening path by the Fed.
Wall Street closed sharply lower in the past two sessions as investor focus turned to a Fed gathering later this week in Jackson Hole, where central bank Chair Jerome Powell is expected to reinforce a strong commitment to stamp out inflation running at four-decades high.
“I expect Powell to be more hawkish than current consensus expects,” said Chris Grisanti, chief equity strategist at MAI Capital Management.
“Powell will once again reiterate that their primary goal is to defeat inflation, he is not there to support the equity markets or the bond market. The market yesterday was a reflection of that fears.”
Traders remain split between a 50-basis point and a 75-basis point hike by the central bank at its meeting next month, though economists polled by Reuters expect a 50-basis point hike.
At 11:35 a.m. ET, the Dow Jones Industrial Average was down 102.99 points, or 0.31%, at 32,960.62, the S&P 500 was up 0.17 points at 4,138.16, and the Nasdaq Composite was up 26.82 points, or 0.22%, at 12,408.39.
Healthcare stocks fell 1.4%, with UnitedHealth Group Inc and Amgen Inc among the worst performers on the blue-chip Dow.
Energy stocks rose 3.7% to lead gains among the 11 major S&P 500 sectors, tracking the jump in crude prices as tight supply moved back into focus.
Macy’s Inc rose 6.7% on beating quarterly profit estimates, while Palo Alto Networks Inc gained 10.9% after the cybersecurity firm posted upbeat quarterly results and announced a stock split plan.
Advancing issues outnumbered decliners for a 1.47-to-1 ratio on the NYSE and a 1.36-to-1 ratio on the Nasdaq.
The S&P index recorded one new 52-week high and 30 new lows, while the Nasdaq recorded 26 new highs and 93 new lows. (Reporting by Bansari Mayur Kamdar and Devik Jain in Bengaluru; Editing by Sriraj Kalluvila and Shounak Dasgupta)