U.S. stocks experienced a downturn on Tuesday, following a disappointing economic outlook at the start of a week filled with crucial updates.
As of midday trading, the S&P 500 fell 1.4%, heading towards its worst performance in nearly a month, after a week of gains that had brought it close to its all-time high. The Dow Jones Industrial Average decreased by 436 points, or 1.1%, moving away from a record set the previous Friday. The Nasdaq composite dropped by 2.3%.
Treasury yields also fell in the bond market after a report indicated a contraction in U.S. manufacturing for August, which continues to struggle due to high interest rates. Manufacturing has been declining for nearly two years, and the latest performance was worse than predicted by economists.
“Demand remains subdued, as companies are cautious about investing in capital and inventory due to current federal monetary policy and uncertainty surrounding the elections,” remarked Timothy Fiore, chair of the Institute for Supply Management’s manufacturing business survey committee.
Concerns over a slowing U.S. economy contributed to a drop in stocks earlier last month, but the markets bounced back on hopes that the Federal Reserve could achieve a balanced economic outcome. The Fed had raised its main interest rate to a two-decade high to combat inflation but is now expected to ease rates later this month to help the economy and avert a recession.
Upcoming reports this week will shed light on the economy’s needs, including job openings at the end of July and the growth of U.S. service businesses in August. The highlight is anticipated to be the jobs report on Friday, shedding light on employment growth.
Analysts at Bank of America noted that the jobs report has become the central focus for the stock market, surpassing inflation updates. Many traders expect the Fed to implement significant interest rate cuts this year, which would indicate a potential recession.
On Wall Street, U.S. Steel’s stock dropped by 5.3% following comments from Vice President Kamala Harris opposing the company’s sale to Japan’s Nippon Steel. Harris’s stance aligns with President Joe Biden’s views after Nippon Steel announced plans for a $1.3 billion investment in Pennsylvania and Indiana facilities, in addition to a prior commitment of $1.4 billion.
Despite ongoing political and labor concerns, Nippon Steel expressed expectations that the deal would close by year-end.
Nvidia was a major drag on the S&P 500, falling 7.2% despite surpassing profit expectations. This decline has intensified scrutiny over whether Nvidia and other major tech stocks have inflated valuations amid a surge in artificial intelligence investment.
Shares of oil and gas companies also contributed to the market’s decline, with crude oil prices plummeting approximately 4% amid global economic concerns. A barrel of benchmark U.S. oil neared $70, down significantly from a peak above $85 in April.
Exxon Mobil and ConocoPhillips declined by 2.3% and 3%, respectively.
However, the market was not entirely negative. Over one-third of stocks within the S&P 500 saw gains, particularly those that benefit from lower interest rates, including dividend-paying stocks and companies less sensitive to economic fluctuations, like utilities and consumer staples producers.
In the bond market, the yield on the 10-year Treasury decreased from 3.91% to 3.85%, a notable drop from 4.70% in late April.
Internationally, stock indexes in Europe and Asia were mostly lower, with growing concerns about the stability of China’s economy highlighted by weak earnings from Chinese firms, such as property developer New World Development Co.