U.S. Stock Market Declines Amid Economic Concerns

U.S. stocks experienced significant losses on Tuesday, marking the worst trading day since the early August sell-off, as troubling economic indicators emerged.

The S&P 500 index fell by 2.1%, reversing gains from a recent three-week winning streak, while the Dow Jones Industrial Average dropped 626 points, or 1.5%. The Nasdaq composite also suffered a decline of 3.3%, with major technology stocks, including Nvidia, contributing significantly to the downturn.

Concerns were amplified following a report indicating that U.S. manufacturing continued to decline in August, impacted by persistent high interest rates. Manufacturing has shown signs of contraction for most of the past two years, and the performance last month was below economists’ expectations.

Timothy Fiore, chairman of the Institute for Supply Management’s manufacturing business survey committee, noted that “demand remains subdued,” attributing it to a reluctance from companies to invest amid ongoing federal monetary policy and election uncertainties.

Oil and gas stocks took significant hits as crude oil prices fell approximately 4%, raising worries about the demands of a weak global economy. Exxon Mobil‘s shares decreased by 2.1%, and ConocoPhillips saw a drop of 3.5%.

Previously, fears regarding a slowing U.S. economy had contributed to a market downturn in early August, driving the S&P 500 nearly 10% below its July record. However, markets quickly recovered amid optimism that the Federal Reserve might successfully manage the economy without triggering a recession.

The Federal Reserve is anticipated to implement interest rate cuts later this month as part of efforts to support the economy and stave off a recession, after previously raising rates to their highest levels in two decades to combat inflation.

Later this week, additional reports will shed light on the economic climate, including job openings data from U.S. employers at the end of July and growth figures for U.S. services businesses from the previous month. Key attention will be on Friday’s jobs report, which has taken precedence over inflation updates in recent market assessments.

Analysts from Bank of America project that many traders are expecting the Fed to deliver up to a full percentage point of interest rate cuts this year, reflecting concerns about potential recession impacts on the economy.

Goldman Sachs economist David Mericle indicated that the strength of the upcoming jobs report could heavily influence the size of the Fed’s interest rate adjustments. A report indicating improved hiring could lead to a more conservative quarter-point cut, while a weaker report might prompt a larger half-point reduction.

Despite general declines, the S&P 500 saw about 30% of its stocks rise, particularly those likely to benefit from lower interest rates, including real estate stocks and dividend-paying companies.

Among individual stocks, U.S. Steel fell by 6.1% following comments from Vice President Kamala Harris opposing the company’s intended sale to Japan’s Nippon Steel, aligning with President Joe Biden‘s views on the matter.

Nvidia emerged as the largest negative contributor to the S&P 500, with a drop of 9.5%. Despite surpassing profit expectations, its performance has faced scrutiny as investors speculate about inflation and the valuation of tech stocks.

Overall, the S&P 500 decreased 119.47 points to settle at 5,528.93. Meanwhile, the Dow decreased by 626.15 points to 40,936.93, and the Nasdaq composite declined by 577.33 points, closing at 17,136.30.

In the bond market, the yield on the 10-year Treasury fell to 3.84% from 3.91% late Friday, reflecting a broader decrease since reaching 4.70% in late April.

Additionally, international markets exhibited declines, with concerns about the stability of China’s economy as mixed data emerged, alongside disappointing earnings reports from local companies such as New World Development Co.