Stocks drop to start lower in August after best month since 2020

US stocks fell on Monday in the volatile first session of August trading as Wall Street struggled to maintain July’s momentum.

The S&P 500 was down 0.3%, while the Dow Jones Industrial Average was down 45 points, or 0.1%. The heavy Nasdaq Composite is down about 0.2%.

Monday’s moves come after stocks capped a month of solid gains on Friday. In July, the benchmark S&P 500 Index rose 9.1%, rebounding from its worst start in a year since 1962. The Nasdaq Composite rose 12.3% to mark one of its best months on record, and the Dow Jones Industrial Average rose 6.7%. the month.

Investors pondered a flurry of data early in the session that showed manufacturing activity expanding at the slowest pace in more than two years. The Institute for Supply Management’s measure of factory activity fell to 52.8 from 53 the previous month, the lowest level since June 2020.

Meanwhile, separate data from Standard & Poor’s Global showed a decline in finished goods stocks for the first time since October 2020.

DataTrek’s Nicholas Colas points out that in recent weeks, stocks have reversed typical “risk-off” behavior, with small stocks outperforming big companies, and the Nasdaq Composite outperforming the S&P 500. The rebound came amid expectations that there are recent signs that there may be a slowdown in the economy The Federal Reserve will shorten its interest rate hike cycle in the fall.

“Summer is a great time to go camping, but we’re not out of the woods yet,” analysts at Bank of America said in a note Sunday morning, warning of more pain ahead for stocks.

During the past five recessions, the S&P 500 bottomed only after downward-adjusting earnings estimates for the index — except in 1990 when EPS futures held steady — but cutbacks in estimates have only begun, BofA noted.

“Our bull market indicators are also suggesting that it is too early to call the bottom,” the analysts said, adding that historical market bottoms occur when 80% of bottom indicators are triggered, compared to only 30% currently and also that bear markets usually end. Only after the Fed starts cutting rates – a move that is likely at least six months away.

A trader works at the New York Stock Exchange (NYSE) in New York City, US, July 26, 2022. REUTERS/Brendan McDermid

Investors are in for another busy week with economic data and corporate earnings. The Labor Department’s July jobs report is the main event of the week, as data released on Friday is expected to show non-farm payroll growth of 250,000 in July.

Meanwhile, another 150 S&P 500 companies are on board to report second-quarter results.

While some earnings came in better than expected, of the nearly 56% of companies that have reported results so far for the second quarter, earnings of only 3.1% came in above estimates, well below the five-year average of 8.8%, According to data from FactSet research.

Releases from companies including Aflac (AFL), Activision Blizzard (ATVI), Pinterest (PINS), and World Wrestling Entertainment (WWE) are on tap on Monday.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter Tweet embed

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