"Is the U.S. Economy on the Edge? Intel Shares Plunge to Worst Level in 50 Years—And Samsung Isn't Far Behind!"

 World stock markets weakened at the end of this week after the market carried out a massive sell-off in technology shares. This massive sale was triggered by concerns about the slowing economy of the United States (US) and the threat of recession.

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The US Wall Street stock exchange collapsed en masse in the last trading week, Friday (2/8/2024). The Dow Jones index fell 1.51%, the Nasdaq index fell 2.43%, and the S&P 500 index fell 1.51%.

European stock markets were also shaken. The FTSE index in London, England fell 1.31%, the German DAX index fell 2.33%, and the French CAC index fell 1.61%. Asian markets are also in a sea of ​​red. 

Japan's Nikkei index was the hardest hit, plunging 5.81%. Korea's KOSPI index also fell 3.65% while the Taiwan index fell 4.43%. China's Hang Seng Index fell 2.08%, Singapore's Strait Times Index fell 1.12%, and the Composite Stock Price Index (IHSG) corrected 0.24%.

Technology shares were the driving force behind the global stock market plunge, with chipmaker Intel (INTC.O) plunging 26.06 percent to $21.48 per share. This position is the lowest since April 8 2013 or the last 11 years. 

The weakening of 26.06% a day is also the deepest since 1974 (31% a day) or more than 50 years or half a century. At that time, Intel had just held its initial public offering (IPO).

The fall in Intel shares caused its market capitalization to fall below US$ 100 billion.Apart from Intel, shares of other technology giants also weakened. Amazon shares fell 8.78%, META shares fell 1.93%, Google shares fell 2.4%, Microsoft shares fell 2.07%, and Nvidia shares fell 1.78%.

The plunge in Intel shares was caused by concerns about the US economy and the company's plans to cut 15,000 jobs and disappointing financial reports. Intel posted revenue of US$12.8 billion or down 1% in April-June 2024 compared to the same period last year. 

This figure was below market expectations of US$12.94 billion. Intel's earnings per share were $2 cents, below expectations of $10 cents. Intel also reported a net loss of $1.61 billion, from a net profit of $1.48 billion in the same period last year. 

Intel plans to cut up to 15,000 jobs in an effort to turn around its loss-making manufacturing business. Intel also forecast third-quarter revenue below expectations.Shares of chipmaker Nvidia fell after reports that the US Department of Justice had launched an investigation into complaints from its rivals that the company may have abused its market dominance in selling chips that support artificial intelligence, or AI. 

In Europe, the STOXX Europe 600 technology stock (.SX8P) plunged 3.6%, its worst level since January 2024 or more than six months. The tech rout dragged the STOXX down 1.3%. In Asia, Taiwan Semiconductor Manufacturing Co, or TSMC, fell 5.9 percent and Samsung fell 4.2 percent. TSMC is the world's largest chip maker, while Samsung is the world's largest memory semiconductor company.

The US Economy is Starting to Worry The fall in technology shares was triggered by fears of a recession or hard landing in the US economy.  Investors are worried about the condition of the US after the latest indicators deteriorated rapidly.

The US announced on Friday that the US unemployment rate jumped to 4.3% in July 2024 from 4.1% in June 2024. The figure was the highest since October 2021 and well above market expectations of 4.1%. The addition of workers to non-farm payrolls was also only 114,000 in July, well below June's figure of 179,000 and below market expectations of 175,000. 

“A sharp slowdown in payrolls in July and a sharp rise in unemployment make a rate cut in September inevitable and will increase speculation that the Fed will start its easing cycle with a 50 basis point cut or even a move between meetings,” said Stephen Brown , deputy chief economist for North America at Capital Economics.

Rising unemployment and low non-farm wages suggest that the US labor market has weakened and is being impacted by high interest rates.

Market players are optimistic that labor market conditions in July will increase the room for the Fed to lower interest rates.

The Fed again maintained its benchmark interest rate at 5.25-5.50% on Wednesday. The Fed gave a strong signal that it will lower interest rates at the Federal Open Market Committee (FOMC) meeting next September.

The Fed raised interest rates by 525 bps in March 2022 to July 2023. They then kept interest rates at 5.25-5.50% in September, November, December 2023, January 2024, March 2024, May 2024, June 2024, and July 2024.

Weak US employment data added to investors' concerns after the US manufacturing sector also weakened. This condition is exacerbated by the technology giant's weak financial reports.

The S&P Global US Manufacturing PMI Index was at 49.6 in July 2024 or the lowest so far this year. 

This condition indicates a decline in business conditions in the US manufacturing sector.

The ISM Services PMI in the US fell to 48.8 in June 2024, the sharpest decline since April 2020. The University of Michigan consumer sentiment index was 66.4 in July 2024, the lowest reading in eight months.

“Market participants saw the risk of a sharp increase in the last 24 hours,” Jim Reid, analyst at Deutsche Bank, told Reuters.

Russ Mould, investment director at AJ Bell, said increasing pessimism about the economy going forward was a bad signal for global stock markets.

“The narrative has changed from a rate cut associated with good news to a rate cut as a measure to avoid a recession,” Bell said 

The US economy will still grow 2.8% (year on year/yoy) in the second quarter of 2024, but growth could decline drastically if labor conditions worsen and the Fed has not cut interest rates.

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