Stocks closed lower on Wednesday as the market’s attempt to recover from Monday’s sharp sell-off lost steam. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite all ended the day in the red. Despite an early surge, a midday rollover in technology stocks, particularly Nvidia and Super Micro Computer, reversed the upward momentum. Rising Treasury yields reflected ongoing concerns about economic stability. Although investor fears seemed to ease slightly, as indicated by the Cboe Volatility Index, uncertainty remains high amidst geopolitical tensions and potential Federal Reserve actions.

Key Takeaways:

  • Dow Jones Declines Amid Volatility: The Dow Jones Industrial Average fell 234.21 points, or 0.60%, to close at 38,763.45. Despite surging 480.30 points at session highs, the index was unable to maintain its gains and reversed course in the afternoon, reflecting the market’s continued volatility and investor caution.
  • S&P 500 and Nasdaq Decline with Tech Sell-off: The S&P 500 declined 0.77% to end at 5,199.50, while the Nasdaq Composite dropped 1.05% to close at 16,195.81. The technology sector saw significant losses, with Nvidia pulling back 5% and Super Micro Computer plummeting 20% following an earnings miss. Tesla also fell 4.4%, and Meta Platforms shed 1%, contributing to the overall decline.
  • Small Caps Underperform Amid Economic Fluctuations: The Russell 2000 index, a benchmark for small-cap stocks, fell 0.9%, continuing its downward trend. Week-to-date, the index is down 3.1%, and it has lost 9.4% in August alone. Small-cap companies, which are more sensitive to economic fluctuations, have been particularly impacted by this week’s sell-off.
  • Treasury Yields Rise as Economic Concerns Persist: The benchmark 10-year Treasury yield rose by 5 basis points to 3.94%, returning to its level prior to last Friday’s weak jobs report. The yield on the 2-year note also edged higher to 3.987%. These rising yields reflect ongoing concerns about economic stability and potential actions by the Federal Reserve.
  • Volatility Index Drops but Remains Elevated: The Cboe Volatility Index (VIX), known as Wall Street’s “fear gauge,” decreased to 28.3 after reaching a low of 22 earlier in the day. This is a notable drop from its peak near 65 on Monday, indicating that investor fears are abating somewhat, although the index remains higher than earlier in the month.
  • European Markets Rebound Strongly: European equity markets closed higher, tracking a global recovery in riskier assets. The Eurozone’s Stoxx 50 added 2% to 4,667, while the pan-European Stoxx 600 advanced 1.6% to 496. The CAC 40 in France rose 1.9% to 7,189, and the UK’s FTSE 100 gained 1.75% to 8,166.88. The banking sector led the gains, with UniCredit up 5%, and industrial stocks like Schneider and Vinci each rising more than 3%.
  • Asia-Pacific Markets Extend Gains: Asia-Pacific markets extended their gains, with Japan’s Nikkei 225 climbing 1.19% to 35,089.62 and the Topix increasing by 2.26% to 2,489.21. The Hang Seng index in Hong Kong rose 1.3% to 16,866.51, and South Korea’s Kospi jumped 1.83% to 2,568.41, while the smaller Kosdaq rose 2.14% to 748.54. China’s CSI 300 ended flat at 3,341.49 despite mixed trade data showing slower-than-expected export growth at 7% year-on-year and faster-than-expected import growth at 7.2%.
  • Cryptocurrencies Pull Back After Brief Rally: Bitcoin fell 3%, maintaining a two-day gain of 3%. Ether dropped 6.5%, erasing its gains from the previous day. The sell-off in cryptocurrencies also impacted related stocks, with Coinbase sliding more than 7% and crypto miners Marathon Digital and Riot Platforms each falling 8%.
  • Oil Prices Rebound with Supply Concerns: US crude oil futures rebounded from a six-month low, with West Texas Intermediate (WTI) September contract rising 2.77% to $75.23 per barrel. Year to date, US crude oil has gained about 5%. Brent October contract increased by 2.42% to $78.33 per barrel, showing a year-to-date gain of about 1.67%. The rise in oil prices was driven by falling US crude stockpiles and lingering supply concerns in the Middle East.

FX Today:

  • Gold Price Slips Amid Market Volatility: Gold prices fell below $2,400 late on Wednesday, trading at $2,385, down 0.06%. Despite rising geopolitical tensions in the Middle East and hopes for a more accommodative monetary policy from the Federal Reserve, gold failed to maintain its earlier gains. If the price continues to decline, key support levels include at $2,365, $2,345, and a support trendline around $2,315. Additional support is seen at $2,278, a recovery past $2,400 could encounter resistance at $2,450, followed by $2,477, and the all-time high of $2,483, with $2,500 being a psychological resistance level.
  • USD/JPY Surges Over 1.50% on BoJ’s Dovish Comments: The USD/JPY pair recorded its largest gains since March 2023, closing below 144.20 on Tuesday but showing significant strength thereafter. Comments from Bank of Japan officials encouraged the rally. If USD/JPY extends its rise past the 148.00 level, it could test 148.45, with further potential to reach 151.50. Conversely, if the pair pulls back, support levels to watch include 146.37, the 146.00 mark, the 145.00 figure.
  • EUR/USD Maintains Bullish Bias Above 200-day SMA: EUR/USD faced selling pressure on Wednesday, revisiting the 1.0900 level after Tuesday’s pullback. EUR/USD aims to challenge the August top of 1.1008 and potentially December’s peak of 1.1139. On the downside, support levels include the 200-day SMA at 1.0830, the weekly low of 1.0777 from August 1, and the June low of 1.0666. Maintaining above the 200-day SMA sustains the pair’s bullish outlook, with resistance at 1.1008 and 1.1132, and immediate support at 1.0903, the 200-SMA at 1.0828, and 1.0777.
  • Australian Dollar Steady After RBA’s Rate Decision: The AUD/USD pair closed around 0.6520, up 0.50% on Wednesday, lifted by the Reserve Bank of Australia’s (RBA) decision to keep rates steady. The governor’s comments indicating no urgent need to cut rates provided support for the Australian Dollar. Despite recent bearish sessions, the pair shows signs of stabilisation. Immediate support is seen at 0.6480, with resistance at 0.6570, suggesting a potential pause in the downtrend as the market digests the RBA’s stance.

Market Movers:

  • Fortinet Surges on Strong Earnings Report: Fortinet was the biggest gainer in the S&P 500, soaring 25% after posting a robust second-quarter report. The cybersecurity company reported adjusted quarterly earnings of $0.57 per share on revenue of $1.43 billion, surpassing analyst expectations of $0.41 per share on $1.40 billion revenue. The strong earnings and upbeat guidance for the current quarter drove investor enthusiasm.
  • Shopify Rises on Positive Outlook: Shopify shares jumped nearly 18% after the Canadian e-commerce company reported better-than-expected second-quarter results. Shopify anticipates revenue growth in the low-to-mid-20% range for the third quarter, compared to the same period last year, beating analysts’ expectations of 20.9% year-over-year sales growth.
  • Lyft Declines on Disappointing Guidance: Lyft’s stock declined more than 17% after issuing softer-than-expected third-quarter guidance. The ride-hailing company forecasted adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) between $90 million and $95 million, below analyst expectations of $103.4 million.
  • Lumen Technologies Soars on Revenue Beat: Lumen Technologies saw its shares surge 32.6% after reporting second-quarter revenue that exceeded Wall Street expectations. The cloud network data company posted $3.27 billion in revenue, surpassing analyst estimates of $3.25 billion. Additionally, Goldman Sachs upgraded Lumen from “sell” to “neutral,” further boosting investor confidence.
  • Upstart Holdings Rockets on Earnings Beat: Upstart Holdings’ stock soared 39.5% after the company reported better-than-expected quarterly results. Upstart posted an adjusted loss of $0.17 per share on revenue of $128 million, beating analyst expectations of a $0.39 per share loss on $125 million revenue. The positive earnings surprise drove significant investor interest.
  • Novo Nordisk Drops on Disappointing Results: Shares of Novo Nordisk tumbled more than 8% after the company reported disappointing second-quarter results and lowered its operating profit outlook for the full year. Despite a strong run-up in the stock year-to-date, driven by optimism around its weight-loss drugs, the latest report raised concerns about competitive pressures from Eli Lilly’s Zepbound and Mounjaro.
  • Reddit Falls Despite Beating Estimates: Reddit shares fell 6.8% even after posting second-quarter results that beat both top and bottom-line estimates. The social news company also provided a positive third-quarter outlook, forecasting sales between $290 million and $310 million, above the $278.7 million expected by analysts. Despite the positive news, the stock faced selling pressure.

As Wednesday’s trading session concluded, the markets demonstrated the ongoing volatility and investor uncertainty that characterises the current economic landscape. The Dow Jones, S&P 500, and Nasdaq all closed lower, reversing earlier gains as technology stocks such as Nvidia and Super Micro Computer faced significant sell-offs. Meanwhile, small-cap stocks continued to struggle, and rising Treasury yields underscored persistent economic concerns. Despite the overall market decline, certain sectors and stocks like Fortinet and Shopify experienced notable gains due to strong earnings reports and positive outlooks. The rebound in European and Asia-Pacific markets provided some global optimism, yet the fluctuations in cryptocurrencies and commodities like oil highlight the complexities investors are navigating. As the market digests these mixed signals, the cautious sentiment remains intense, with attention closely focused on upcoming economic indicators and corporate earnings reports.