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US stocks fall as consumers worry over economic outlook

Wall Street stocks fell on Friday as fresh data revealed US consumer sentiment falling to its lowest level this year, raising fears the domestic economy was rapidly slowing down.

Wall Street’s benchmark S&P 500 reversed earlier gains to trade 0.7 per cent lower while the Nasdaq Composite was down 0.9 per cent.

The moves follow the preliminary reading of the University of Michigan’s consumer sentiment index, which fell to 57.7, missing economists’ expectations for it to stay close to April’s reading of 63.5. Participants’ worries escalated alongside negative news about the economy, including the debt-ceiling crisis.

Moreover, the US regional banking sector spooked investors again, as lender PacWest Bancorp lost 1.3 per cent. A day earlier, the bank shed 23 per cent after the bank announced it lost almost a tenth of its deposits in the first week of May. The KBW Regional Banking Index was down 0.5 per cent, indicating lingering fears over the profitability of the market.

Investor sentiment is being swayed by economic data, with traders looking for signs the Federal Reserve had made progress in cooling the US economy and reducing inflation, and might be nearing the end of its policy of higher interest rates.

Earlier this week data on jobless claims signalled that the Fed’s series of aggressive rate rising was having an effect. The tech-heavy Nasdaq Composite index has added nearly 20 per cent in the year to date, far outpacing the 8 per cent gain of S&P 500.

“The anticipation of that peak [of interest rate rises] from the Federal Reserve is supporting tech more than it is supporting anything else,” said Mobeen Tahir, director of macroeconomic research and tactical solutions at WisdomTree Europe.

“We clearly see a rotation back into growth leading the way this year, and that’s evident from the outperformance of the Nasdaq versus the S&P 500,” he added.

Line chart of (rebased) showing Nasdaq has outperformed S&P 500 in 2023

The yield on interest rate-sensitive two-year Treasury notes rose 0.08 percentage points to 3.99 per cent, while the yield on 10-year notes was up 0.051 percentage points, at 3.45 per cent. Bond yields rise when prices fall.

In Europe, the region-wide Stoxx 600 share benchmark rose 0.4 per cent, aided by strong corporate earnings from Switzerland’s Richemont, which boosted luxury goods makers. France’s CAC 40 added 0.5 per cent, led by strong earnings from French reinsurer Scor.

The rises come despite hawkish signalling from the European policymakers, with the head of Germany’s central bank Joachim Nagel saying eurozone interest rates could still rise in September because of sticky underlying inflation measures.

The ECB last week raised its deposit rate to 3.25 per cent. Most economists expect it to pause at 3.75 per cent in July.

London’s FTSE 100 gained 0.3 per cent on Friday as official data showed the economy expanding 0.1 per cent between the last quarter of 2022 and the first three months of this year, unchanged from the previous quarter and in line with analysts’ expectations.

The dollar gained 0.6 per cent against a basket of six other currencies on Friday.

Equities declined in Asia, with Hong Kong’s Hang Seng index falling 0.6 per cent and China’s CSI 300 shedding 1.3 per cent. Japan’s Topix was the exception, adding 0.6 per cent and buoyed by positive earnings forecasts from some of the country’s biggest companies in recent days.

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