Stock Market Breaks Winning Streak After Data Reveals ‘Worrying Deterioration’ In Economy

The Dow Jones Industrial Average fell 138 points, or 0.4%, to close at 31,899, while the S&P 500 fell 0.9% and the tech-heavy Nasdaq 1.9%; for the week, the indexes ended up 2%, 2.5% and 3%, respectively.

Though roughly flat to start the day, stocks started sinking after S&P Global reported business activity has fallen “notably” in July, with its widely monitored Flash U.S. PMI Index posting the sharpest decline in output since May 2020 amid the pandemic recession, despite expectations for a slight gain.

In a statement, S&P Global chief business economist Chris Williamson said the unexpected contraction points to a “worrying deterioration” in the economy as inflation, higher interest rates and “growing gloom” about the economic outlook overcome the pent-up demand that helped fuel growth during the pandemic.

With companies’ expectations of future growth slumping to the lowest level since the early days of the pandemic, firms are starting to reassess their production and workforce needs, resulting in slower employment growth, Williamson adds.

S&P Global wasn’t alone in raising new concerns on Friday: Bank of America economist Michael Gapen wrote in a note to clients that gross domestic product likely shrank 1.5% last quarter as a result of a steeper-than-expected housing market decline and a sharp increase in business inventories (as consumer spending slows).

Gapen said the slew of economic data pushing sentiment down this week supports the bank’s projection that the U.S. will fall into a recession later this year, with inflation—which last month clocked in at 9.1%—likely taking at least another two years before falling in line with the Fed’s mandate of 2%.