The tech sector was particularly hard hit, with investors speculating that economic troubles in the US would expand to a global economic slowdown. As a result, major indices – and shares in key tech companies – fell.
The sell-off was exacerbated by a disappointing US jobs report, which revealed a sharp slowdown in job growth and a rise in unemployment.
The STOXX Europe 600 index suffered a 3.6% decline to its lowest point since January, dragged down by a broader market sell-off and the fallout from Intel’s disappointing earnings report.
The chipmaker announced a dividend suspension and massive job cuts last week, as part of a broader strategy to cut costs by $10 billion by 2025 to reverse its declining fortunes.
Shares plunged 20% in pre-market trading, triggering a domino effect on European chipmakers.
The Netherlands, a European hub for semiconductor manufacturing, bore the brunt of the tech sell-off. Shares in ASML were down 9.6%, while rival ASM International saw an even steeper decline of 13.7%.
These companies are highly sensitive to economic conditions, as demand for their products is closely tied to the overall health of the semiconductor industry.
There were also significant market declines in France and Germany, with France’s CAC 40 index and Germany’s DAX down by more than 1% and 2%, respectively.
“The past 24 hours have seen an increasingly precarious backdrop for risk markets, with a risk-off mood on the back of another batch of weak US data yesterday followed by mostly downbeat tech earnings overnight,” said Jim Reid, an analyst at Deutsche Bank.
Shares also fell at Nvidia, following reports of a US Department of Justice investigation into potential antitrust violations, and Amazon, which missed sales forecasts.
“Market moves can get exacerbated during summer weeks when you get thinner liquidity and trading, especially in August and that can add to the magnitude of moves,” Karim Chedid, Blackrock’s chief investment strategist for iShares EMEA, told Reuters.
US economy appears to falter
Friday’s sell-off came after a challenging trading day on Wall Street on Thursday. The Dow Jones Industrial Average fell 1.2%, nearly 500 points. The downturn was prompted by data showing that US manufacturing activity fell to an eight-month low in July due to a decline in new orders. Data also showed a surge in new unemployment benefit applications, to an 11-month high.
The US dollar weakened in response to the market turmoil, boosting the pound and euro.
The weak US economic data has also intensified speculation about a potential Federal Reserve interest rate cut. Financial markets now anticipate a rate reduction in September, with a half-point cut seen as a strong possibility.
Russ Mould, an investment director at AJ Bell, said: “An economy going through a bad patch is one catalyst for a central bank to cut rates and hopefully stimulate activity.
“This thought process is likely to be at the top of the agenda for the Fed this week after shocking US economic data that featured bigger than expected jobless claims and contraction in manufacturing. The narrative has changed from rate cuts equating to good news to rate cuts meaning measures to avoid recession.”
Last month, Tesla saw its stock price plummet after reporting a steep decline in quarterly profits.
The company’s net income dropped by 45% to $1.47 billion, falling short of Wall Street expectations.
Alphabet stocks also dropped after the company warned, in an earnings call, of limited Q3 revenue growth due to increased capital spending and a lack of profit from AI investments.
