Behind the collective decline of the three major US stock indices

On July 31st Eastern Time, the three major indexes in the US stock market collectively closed down, pouring cold water on the recently hot US stock market. As of the close, the Dow Jones Industrial Average fell 0.74% to 44130.98 points; The S&P 500 index fell 0.37% to 6339.39 points; The Nasdaq index fell slightly by 0.03% to 21122.45 points. A seemingly ordinary index decline is hidden behind complex economic, policy, and market factors.

The uncertainty at the policy level is one of the important factors contributing to the recent decline in the US stock market. After this week's Federal Reserve policy meeting, investors began to reassess the path of monetary policy. The market originally had some expectations for a rate cut in September, but the "cautious" signal released by the meeting minutes, combined with the US June core personal consumption expenditure price index exceeding expectations, has raised serious doubts among investors about whether there will be another rate cut in September. This uncertainty about the direction of monetary policy has made investor sentiment cautious. Interest rates, as a key factor affecting the stock market, have a direct impact on the financing costs of enterprises and the flow of funds to investors. If interest rates do not decrease or even rise as expected in the future, the borrowing costs of enterprises will increase, and profit margins may be compressed. This will undoubtedly reduce the attractiveness of stocks, prompting investors to sell their stocks and leading to a decline in the stock market.

The changes in trade policies have also had a huge impact on the US stock market. US President Trump signed an executive order imposing a 35% tariff on Canada and extending the high tariff agreement with Mexico. In addition, the White House is scheduled to impose higher tariffs on major trading partners including India and Brazil on Friday. The escalation of trade frictions has seriously questioned the stability of the global supply chain. Many American companies, especially manufacturing and export enterprises, are facing problems such as rising raw material costs and declining overseas market share, resulting in a significant compression of profit margins. Represented by the automotive and steel sectors of the US stock market, they led the market in decline under the impact of tariff policies. The automotive industry relies on the global supply chain to obtain components, and the increase in tariffs has led to higher import costs for components. Companies must either bear the costs themselves to compress profits, or raise product prices to reduce market competitiveness. Either choice is detrimental to the development of the enterprise; The steel industry is also facing the dilemma of export obstruction and intensified domestic competition, as tariffs will limit US steel exports. At the same time, the domestic market may attract more local companies to compete due to import restrictions, leading to an overall decline in industry performance expectations and further dragging down stock prices.

The internal differentiation of technology stocks and the market's concern about AI foam also led to the decline of US stocks to some extent. Among the "Big Seven" technology stocks, Microsoft and Meta rose about 3.95% and 11.25% respectively, thanks to their quarterly financial reports exceeding expectations. Microsoft's cloud computing service Azure has an annual revenue of over 75 billion US dollars, and Meta has released optimistic third quarter revenue guidance. But other large tech stocks did not perform as expected, with Tesla falling 3.38% and Nvidia falling 0.78%. The market's concerns about the excessive hype surrounding AI concepts have begun to emerge, with some funds choosing to take profits. The design software company Figma surged 250% on its first day of listing, which briefly boosted market sentiment but could not conceal the overall concerns of the technology sector.

The personal consumption expenditure price index in the United States increased by 0.3% month on month and 2.6% year-on-year in June, and the related data of the core personal consumption expenditure price index also exceeded expectations. The rise of inflation may constrain the monetary policy space of the Federal Reserve. If inflation continues to rise, the Federal Reserve may have to adopt a tighter monetary policy, which will have a negative impact on economic growth and the stock market. At the same time, the consumer confidence index has declined. According to data released by the World Conference on Large Enterprises, a research institution in the United States, on June 24th, the US consumer confidence index in June fell sharply from 98.4 in May to 93. Consumers, as an important driving force for economic growth, may experience a decrease in confidence, which could lead to a reduction in consumer spending and subsequently affect business revenue and profits, reflected in the stock market as a decline in stock prices.

The collective decline of the three major US stock indices is not accidental, but the result of multiple factors such as policies, economy, and market. For investors, it is necessary to closely monitor the changes in these factors in order to make informed decisions in a complex and ever-changing market environment; For policy makers, balancing the relationship between trade policy, monetary policy, and economic growth to avoid excessive market volatility is also an urgent issue that needs to be addressed. The future direction of the US stock market will still depend on the dynamic evolution of these factors.