U.S. stocks experienced significant declines on Tuesday as the week kicked off with disappointing economic updates. The S&P 500 dropped by 1.4% during midday trading, heading towards its worst day in nearly a month after a recently successful week that brought it close to its all-time high. The Dow Jones Industrial Average fell 436 points, or 1.1%, from its previous record set on Friday before the Labor Day holiday, while the Nasdaq composite saw a decline of 2.3%.
Treasury yields decreased in the bond market following a report indicating that U.S. manufacturing continued to contract in August. This decline is attributed to high interest rates that have been impacting the sector for nearly two years, with August’s figures performing worse than economists had anticipated.
“Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and election uncertainty,” remarked Timothy Fiore, chair of the Institute for Supply Management’s manufacturing business survey committee.
Concerns about a slowing U.S. economy had previously led to a significant drop in stock prices early last month, but markets later rebounded on hopes that the Federal Reserve could effectively stabilize the economy. After raising its main interest rate to a two-decade high in an effort to combat inflation, the Fed is expected to ease rates later this month, aiming to improve economic conditions and avert a recession.
This week will bring further reports that could provide insights into the economy’s needs, including updates on job openings and the growth of U.S. services businesses for the previous month. The highlight is anticipated to be the jobs report on Friday, detailing employment growth for August.
According to analysts from Bank of America, the monthly jobs report has become the focal point for the stock market, shifting attention away from inflation updates. Many traders are predicting a total interest rate cut of one percentage point from the Fed this year, a move reflective of a “recession-sized” response.
On Wall Street, U.S. Steel saw a decline of 5.3% in its first trading session after Vice President Kamala Harris expressed opposition to the company’s proposed sale to Japan’s Nippon Steel. Her comments aligned with President Joe Biden’s stance and followed Nippon Steel’s announcement of an additional $1.3 billion investment in upgrading facilities in Pennsylvania and Indiana.
Despite ongoing political and labor concerns, Nippon Steel reaffirmed its expectation to complete the transaction by the end of this year.
Nvidia impacted the S&P 500 the most with a 7.2% drop, struggling despite exceeding profit expectations. This downturn reignited discussions about the potential overvaluation of Nvidia and other major tech stocks following Wall Street’s fervor for artificial intelligence technology.
Additionally, oil and gas stocks contributed to the market’s decline as crude oil prices fell approximately 4%, raising concerns over global fuel consumption. A barrel of benchmark U.S. oil hovered near $70, down from over $85 in April.
Exxon Mobil experienced a 2.3% drop, while ConocoPhillips fell by 3%.
However, not all stocks were in the red; over one-third of S&P 500 stocks saw gains, particularly those that benefit from lower interest rates, such as dividend-paying stocks and companies less affected by economic fluctuations.
In the bond market, the yield on the 10-year Treasury note decreased to 3.85% from 3.91% late Friday, marking a shift from 4.70% in late April.
Internationally, stock markets across much of Europe and Asia also faced declines, and apprehensions regarding the stability of China’s economy grew as recent data painted a mixed picture, with disappointing earnings reports from several Chinese companies exacerbating concerns.