Stocks Hit by Tech Rout Before September Challenge: Markets Wrap

(Bloomberg) — Wall Street traders drove stocks lower amid a selloff in tech shares that have powered the surge from April’s meltdown. The slide came despite inflation data that did little to alter bets on Federal Reserve rate cuts, with short-dated Treasuries outperforming.

A rout in the S&P 500’s most-influential group drove the index down from a record at the end of a solid August. The Nasdaq 100 fell 1.2%. The market is bracing for what is known as the weakest month for US shares, as institutional investors rebalance, retail traders slow their buying and volatility picks up.

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“It’s month end, and we are entering the most historically challenging month of the year,” said Louis Navellier at Navellier & Associates. “Being cautious would seem prudent. It may not last long, given the repeated success of dip buyers.”

While macro events are generally more determinant for the market’s direction, seasonal factors can exacerbate moves triggered by the likes of economic data or monetary policy. US consumer spending rose in July by the most in four months, indicating resilient demand in the face of stubborn inflation.

That was ahead of next week’s all-important jobs report, which will be key in setting the pace of Fed rate cuts by year-end.

“Barring a blowout nonfarm payrolls print next Friday, we view a September 17 rate cut as likely, given the growing chorus of dovish Fedspeak,” said Jennifer Timmerman at Wells Fargo Investment Institute.

Despite Friday’s drop, the S&P 500 saw a fourth straight month of gains. Nvidia Corp. led losses in megacaps. Dell Technologies Inc. sank amid tighter profit margins on servers. AI infrastructure shares slid as Marvell Technology Inc.’s outlook raised concern about data-center equipment demand.

Treasuries cemented a monthly gain in anticipation of Fed cuts. While bonds were mixed Friday, the policy-sensitive two-year yield fell one basis point to 3.62%. The dollar was little changed at the end of a weak August.

The core personal consumption expenditures price index, which excludes food and energy items and is favored by the Fed, rose 0.3% from June. From the prior year, the gauge picked up to 2.9%, the most since February.

“The good news is, in-line expectations likely keep the status quo intact, which leaves a Fed rate cut in play for September,” said Bret Kenwell at eToro. “The bad news is, inflation is continuing to inch higher, which isn’t really the environment the Fed likely wants to cut in.”

For now though, Kenwell notes that an in-line PCE report should lend more confidence to a September rate cut. Short of a robust jobs reading, it’s hard to see any data derailing the Fed’s plan to cut rates in September, he said.

The Fed has kept rates unchanged so far in 2025, largely due to concerns that tariffs could stoke inflationary pressures. But lackluster employment figures released after the July meeting have prompted greater concern, and Fed Chair Jerome Powell said last week a cut could be warranted, citing a “shifting balance of risks.”

“With earnings season now behind us, most will turn their focus back to economic data, one release being the August jobs report that is due next week,” said Adam Phillips at EP Wealth Advisors. “Any news that brings September’s rate cut into question could be a wake-up call for investors.”

“The Fed opened the door to rate cuts, but the size of that opening is going to depend on whether labor-market weakness continues to look like a bigger risk than rising inflation,” said Ellen Zentner at Morgan Stanley Wealth Management. “For now, the odds still favor a September cut.”

With the Fed remaining laser-focused on labor market weakness, as long as next Friday’s data does not change the narrative of a jobs market on the verge of a collapse, the door is wide open for a September rate cut, according to Atakan Bakiskan at Berenberg.

US WEEK AHEAD: Nonfarm Payrolls Won’t Settle Rate-Cut Debate

On Friday, Fed Bank of San Francisco President Mary Daly suggested policymakers will be ready to lower rates soon, adding that inflation stemming from tariffs will likely prove temporary.

Fed Governor Christopher Waller this week called for lower rates, saying he would support a quarter-percentage point reduction in September and anticipates additional cuts over the next three to six months.

While he does not currently see the need for an outsized cut, that could change if the jobs report due next week “points to a substantially weakening economy and inflation remains well contained.”

Friday’s data left intact expectations that the Fed will cut interest rates twice this year, beginning as soon as next month, in response to signs of a softer labor market even as inflation remains above the 2% target.

“While there might be some impact from tariffs, fears about spiraling inflation aren’t coming true yet,” said David Russell at TradeStation. “Strong personal income and spending also suggest consumers remain healthy, even if they’re anxious about the future.”

Inflation is increasing ever so slightly, but right in line with forecasts and the latest PCE data should only increase the probability of a Fed rate cut next month, according to Chris Zaccarelli at Northlight Asset Management.

While Friday’s selling in stocks could have been investors trying to get ahead of the seasonal weakness, we’re entering September after the S&P 500 made a series of record highs for the year, “leaving little margin for error,” according to Bespoke Investment Group strategists.

“Although September is typically the weakest month of the year on average, we don’t see anything on the horizon to knock this bull market off its path,” Zaccarelli said.

If there is any volatility in September or October, it will likely prove to be “a great buying opportunity as we are setting up to rally into year end, especially if the Fed is cutting rates outside of a recession,” he concluded.

In fact, Gina Bolvin says September isn’t necessarily that bad when strong momentum is in place.

Historically, she noted the month is negative about 44% of the time, yet when trading above the 200-day moving average, the average return is still positive by 1%.

“That backdrop supports the ‘buy the dip’ narrative,” said the president of Bolvin Wealth Management Group. “I still expect seasonal weakness to kick in and would look to be a buyer on dips.”

Corporate Highlights:

The Trump administration will make it harder for Samsung Electronics Co. and SK Hynix Inc. to ship critical equipment to their chipmaking operations in China, dealing a potential blow to the companies’ production in the world’s largest semiconductor market. Super Micro Computer Inc. cautioned that weaknesses in its controls related to financial disclosures could, if not fixed, hurt the company’s ability to report results “in a timely and accurate manner.” Just three weeks after its last quarterly report, Caterpillar Inc. is warning investors it now expects tariffs to have an even greater impact on its business, costing it as much as $1.8 billion this year. Gap Inc. expects its margins will shrink this year, a sign tariffs are slowing recent turnaround momentum. Petco Health & Wellness Co Inc. raised its earnings targets for the year as the company’s turnaround starts showing signs of progress. Ulta Beauty Inc. raised its full-year outlook after reporting second-quarter results that topped expectations, even as it warned of a potential pullback by consumers. UK users of the Mounjaro obesity shot will be spared the full impact of maker Eli Lilly & Co.’s price increase as some pharmacies opt to shield customers — at least for now. Alibaba Group Holding Ltd. reported a surge in revenue from China’s AI boom, helping assuage investors nervous about the fallout from a worsening battle with Meituan and JD.com Inc. in internet commerce. Huawei Technologies Co. posted a first-half profit, getting back into the black after the emergence of DeepSeek ignited a wave of AI development across China. BYD Co. reported a surprise drop in quarterly profit due to fierce price competition in its home market, piling more pressure on the Chinese carmaker already poised to miss its annual sales targets. What Bloomberg Strategists say…

“Stock and bond markets have a history of moving in tandem in September, based on the past five years. If the trend re-establishes itself in 2025, the likely direction for both markets is lower, with investors banking on an extended cycle of interest-rate cuts bound for disappointment.”

—Kristine Aquino, Managing Editor, Markets Live

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Some of the main moves in markets:

Stocks

The S&P 500 fell 0.6% as of 4 p.m. New York time The Nasdaq 100 fell 1.2% The Dow Jones Industrial Average fell 0.2% The MSCI World Index fell 0.5% Bloomberg Magnificent 7 Total Return Index fell 1.4% The Russell 2000 Index fell 0.5% Currencies

The Bloomberg Dollar Spot Index was little changed The euro rose 0.1% to $1.1698 The British pound was little changed at $1.3515 The Japanese yen was little changed at 146.96 per dollar Cryptocurrencies

Bitcoin fell 3.3% to $108,227.01 Ether fell 2.6% to $4,343.75 Bonds

The yield on 10-year Treasuries advanced three basis points to 4.23% Germany’s 10-year yield advanced three basis points to 2.72% Britain’s 10-year yield advanced two basis points to 4.72% Commodities

West Texas Intermediate crude fell 1% to $63.97 a barrel Spot gold rose 1% to $3,451.48 an ounce –With assistance from Isabelle Lee.

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