U.S. stocks experienced a decline on Tuesday as the market reacted to disappointing economic data ahead of a week filled with critical updates regarding the economy.
Midway through the trading day, the S&P 500 was down 1.4%, positioning it for its largest loss in nearly a month, following a recent recovery that brought it close to its all-time high. The Dow Jones Industrial Average fell by 436 points, or 1.1%, from its previous peak set on Friday prior to the Labor Day holiday. The Nasdaq composite saw a bigger drop of 2.3% by 11:45 a.m. Eastern time.
In the bond market, Treasury yields also decreased after a report indicated that U.S. manufacturing contracted for the second consecutive month in August, weighed down by elevated interest rates. Manufacturing has been in decline for much of the last two years, with August’s performance falling short of economists’ predictions.
“Demand remains weak as businesses hesitate to invest in capital and inventory due to current federal monetary policies and uncertainties surrounding the upcoming elections,” stated Timothy Fiore, chair of the Institute for Supply Management’s manufacturing business survey committee.
Anxiety over a slowing U.S. economy contributed to a notable market downturn early last month, although there had been a subsequent recovery fueled by optimism that the Federal Reserve could successfully navigate the economy through tough conditions. Following substantial increases in interest rates to combat high inflation, the Fed may consider easing rates this month to help the economy and stave off a recession.
Upcoming reports this week will provide insight into the economy’s needs, including data on job openings and the growth of U.S. services for August. The most anticipated data will be released on Friday, detailing job creation in the U.S. for the month.
Analysts from Bank of America indicated that the jobs report has taken precedence over inflation updates in terms of importance to the stock market. Many traders are predicting that the Fed might cut interest rates by a full percentage point this year, representing a significant reduction reflective of recession conditions, as noted by Gonzalo Asis and other BofA economists.
On Wall Street, U.S. Steel saw a sharp decline of 5.3% following Vice President Kamala Harris’s opposition to the company’s proposed sale to Japan’s Nippon Steel. Her comments aligned with President Biden’s position and came after Nippon Steel announced a further investment of $1.3 billion in Pennsylvania and Indiana facilities on top of a previous commitment.
Despite objections from politicians and labor groups, Nippon Steel has reiterated its expectation to finalize the deal by year-end.
Nvidia was the largest drag on the S&P 500, falling 7.2%. The company’s stock has struggled despite exceeding expectations in its latest profit report. This downturn may feed into critiques that Nvidia and other tech giants had overpriced valuations amid the AI boom.
The decline in oil and gas stocks also contributed to the market’s losses as crude oil prices dropped around 4% amid concerns regarding global fuel demand. A barrel of U.S. oil has nearly returned to the $70 mark and remains lower for the year after reaching over $85 in April.
Exxon Mobil’s stock fell by 2.3%, while ConocoPhillips dropped 3%.
However, not all was bleak on Wall Street, as more than a third of S&P 500 stocks were on the rise, particularly those benefiting from lower interest rates, such as dividend-yielding stocks and companies less impacted by economic fluctuations.
In the bond market, the yield on the 10-year Treasury note declined to 3.85% from 3.91% late last week, down significantly from 4.70% in April.
Internationally, stock indexes were mostly lower across Europe and Asia. Concerns were also escalating regarding the strength of China’s economy, as recent disclosures painted a mixed economic picture paired with weak earnings from companies like property developer New World Development Co., intensifying pessimism.