Economists argue the Fed should have lowered interest rates

The S&P 500 declined for the third consecutive week, while the Nasdaq 100 tumbled into a market correction phase, suffering a 10% drawdown from its all-time highs hit last month.

Statements from Fed Chair Jerome Powell hinting at a potential rate cut in September provided only temporary support to the stock market, as weaker-than-expected economic data and escalating geopolitical tension in the Middle East dampened investor risk appetite by week's end.

As a result, investors turned to safe-haven assets, with long-term Treasury bonds enjoying their best week in years as yields fell sharply amid increased expectations of Fed rate cuts. Speculators are now betting on a larger 50-basis-point reduction in September.

The U.S. economy showed signs of weakness last month, as manufacturing activity contracted at its fastest rate since December 2023 and job growth slowed significantly. Alarmingly, the unemployment rate unexpectedly rose to 4.3%, the highest level since October 2021.

Utilities were the strongest sector for the week, while technology the worst. Regional banks and semiconductors suffered the heaviest losses among industries.

Fed policy mistake?

The Federal Reserve's decision to keep interest rates unchanged was criticized by some economists as a serious policy error, especially following the July jobs report released Friday that showed rising unemployment. Economists argue the Fed should have already lowered rates this week to support the economy as labor market data turns negative.

Chip stocks plunge

Chip stocks plunged, with Intel, Nvidia and ASML seeing sharp declines due to weak manufacturing data and higher jobless claims. The sector faces pressure from U.S.-China tensions, regulatory challenges and disappointing earnings, triggering a broad retreat in semiconductor stocks.

Amazon stock dips

Amazon shares fell after reporting mixed quarterly results, with net sales below expectations and AWS revenue slightly surpassing estimates at $26.3 billion. The company issued soft third-quarter guidance, predicting net sales between $154 billion and $158.5 billion, below analyst estimates.

Apple AI surge

JPMorgan analyst Samik Chatterjee remains optimistic about Apple's artificial intelligence-driven growth, maintaining an Overweight rating on the stock after strong third-quarter results. The upcoming AI upgrade cycle with products like the iPhone 16 and iOS 18 is expected to drive significant growth, enhancing Apple's market leadership, the analyst said.

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Benzinga is a financial news and data company headquartered in Detroit.