Investing.com -- “The sharp correction in stocks in July/early August was due to several factors, with the most important one being softer-than-expected economic growth data that culminated in a weak employment report on August 2”, said analysts at Morgan Stanley in a note.
The most important factor was a 0.2 percentage point increase in the unemployment rate, which activated the Sahm Rule—a key recession indicator—and heightened fears of a potential hard landing for the economy. This spooked investors, leading to a broad-based sell-off in equities. Conversely, another weak jobs report, particularly if it shows a further rise in the unemployment rate, could reignite fears of a hard landing and put renewed pressure on equity valuations.
Morgan Stanley also notes that the Bloomberg Economic Surprise Index, which tracks the degree to which economic data exceeds or falls short of expectations, has not yet reversed its downward trend that began in April. Analysts believe that AI stocks have been a major force in the U.S. market, but recent disappointing earnings have caused a decline in many of these stocks.
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