US investors trigger major Wall Street sell-off over recession fears

US investors triggered a major sell-off on Wall Street on Thursday set off by fears that the job market is cooling, manufacturing is slowing and the Federal Reserve has left cutting interests too late to head off a recession.

The Dow Jones fell nearly 500 points (1.2%), while the S&P 500 was also down 1.3%. A series of disappointing results from tech companies have led to sell-offs in big tech.

After a rally on Wednesday following Meta’s second-quarter earnings results, which were better than expected, the tech-heavy Nasdaq’s index was down 2.3%. The bad news continued after markets closed with Intel announcing 15,000 layoffs and Amazon releasing disappointing results.

Two economic data points released on Thursday appeared to spook investors. One measurement of manufacturing activity by the Institute for Supply Management (ISM) hit an eight-month low in July, while the number of Americans filing new applications for unemployment benefits hit an 11-month high last week, according to data released on Thursday.

“The ISM is really what started the ball rolling today and then selling causes more selling,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.

“We’re still in earnings season and there will be positive surprises that will probably drive the market higher and there may be negative surprises as well … but if you get something negative like ISM, it causes profit-taking.”

Despite Thursday’s stock sell-off, the stock market has still had a relatively strong year, with the S&P 500 and Nasdaq up 14.3% and 16% this year, respectively. Both the S&P 500 and Nasdaq registered their biggest daily percentage gains since February in the prior session, boosted by a rally in chip shares after the Fed kept rates steady, as expected.

Thursday’s data came a day after the Federal Reserve announced it would keep rates at a two-decade high until September. Investors expected rates would be held steady, and many expect the first cut to come next month.

But while the Fed chair, Jerome Powell, confirmed that the central bank would be willing to drop rates soon, any cut would only come if inflation over the summer proves to be somewhat stable. Inflation in June was 3%, one of the lowest months since prices started rising in 2021.

“If inflation were to prove stickier, and we were seeing higher rates of inflation and disappointing readings, we would weigh that along with other things,” Powell said on Wednesday, though he added that the Fed was also focused on the labor market, the other half of the Fed’s “dual-mandate”. Unemployment in June hit 4.1% – the highest its been since 2021.

The Fed’s next meeting is 20 September.

Reuters contributed reporting