S&P 500 Sees Biggest Slide Since August Meltdown: Markets Wrap

(Bloomberg) — Stocks got hit at the start of a historically tough month for the market, with investors bracing for economic data that will show whether or not the Federal Reserve will need to be aggressive with rate cuts.

Traders took risk off the table, with the S&P 500 seeing its worst slump since the Aug. 5 market meltdown. That’s after a rally that put the benchmark within a striking distance of its all-time highs. The gauge’s most-influential group — technology — sold off on Tuesday, with Nvidia Corp. driving a plunge in chipmakers. Energy shares tumbled as oil erased its 2024 gains. Bonds climbed.

A contrarian sentiment gauge from Bank of America Corp. rose to its highest level in nearly two and a half years last month — creeping closer to a “sell” signal for US stocks. September has been the biggest percentage loser for the S&P 500 since 1950, according to the Stock Trader’s Almanac. 

“For all years since World War II, August and September saw the S&P 500 endure a double-dose of declines,” said Sam Stovall at CFRA. “Yet history now advises investors to fasten their safety belts, since during election years, this sequential seasonal slippage has shifted to September and October.”

The equity-market rally may stall near record highs even if the Fed starts a highly anticipated rate-cutting cycle, JPMorgan Chase & Co. strategists said earlier this week. The team led by Mislav Matejka noted that any policy easing would be in response to slowing growth, making it a “reactive” reduction.”

Meantime, the Morgan Stanley strategist who foresaw last month’s market correction says shares that have lagged the rally in US stocks could get a boost if Friday’s jobs data provide evidence of a resilient economy. A stronger-than-expected payrolls number would likely give investors “greater confidence that growth risks have subsided,” Michael Wilson wrote.

The S&P 500 dropped 1.4%. The Nasdaq 100 slid 2.2%. The Dow Jones Industrial Average fell 1%. The Russell 2000 of smal firms lost 2%. Nvidia slumped 7.7%. Boeing Co. sank 7.6% on an analyst downgrade. Wall Street’s favorite volatility gauge – the VIX – spiked to 18.

Treasury 10-year yields fell six basis points to 3.85%. A record number of blue-chip firms are swarming the corporate-bond market, taking advantage of cheaper borrowing costs ahead of the US presidential election. The yen climbed about 1% as Bank of Japan Governor Kazuo Ueda reiterated the central bank will continue to raise rates if the economy and prices perform as expected.

US manufacturing activity shrank in August for a fifth month. The data marked the start of a busy week of economic figures, culminating with the all-important jobs report on Friday.

“The trepidation regarding the recent rise in the unemployment rate will leave the market on edge until Friday morning’s data is in hand,” said Ian Lyngen and Vail Hartman at BMO Capital Markets. “ISM Manufacturing underwhelmed in August. Overall, there wasn’t anything encouraging in the data, but this isn’t particularly new for the US manufacturing sector.”

This coming Friday, the August jobs report is expected to show payrolls in the world’s largest economy increased by about 165,000, based on the median estimate in a Bloomberg survey of economists. 

While above the modest 114,000 gain in July, average payrolls growth over the most recent three months would ease to a little more than 150,000 — the smallest since the start of 2021. The jobless rate probably edged down in August, to 4.2% from 4.3%.

“This week’s jobs report, while not the sole determinant, will likely be a key factor in the Fed’s decision between a 25 or 50 bps rate cut,” said Jason Pride and Michael Reynolds at Glenmede. “Even modest signals in this week’s jobs report could be a key decision point as to whether the Fed takes a more cautious or aggressive approach to rate cuts.”

US interest-rate strategists predict a bigger market reaction if Friday’s August employment data is weaker than anticipated, according to the limited quantity of weekly research reports published around the holiday weekend.

Traders are now anticipating that the Fed will cut its rate by a full percentage point by the end of the year, implying an unusually large half-point reduction at one of the three meetings left in 2024.

What’s more, traders are anticipating that the central bank will reduce its benchmark rate by more than two full percentage points over the next 12 months, which would be the steepest drop outside of an economic downturn since the 1980s.

Corporate Highlights:

• Boeing Co. slumped as Wells Fargo & Co. lowered the planemaker to a sell-equivalent recommendation, saying it’s hard to see any upside in the shares.
• Vice President Kamala Harris joined President Joe Biden in declaring that United States Steel Corp. should remain domestically owned and operated, the latest headwind to the proposed sale of the company to Japan-based Nippon Steel Corp.
• Deutsche Bank AG cut the recommendation on JPMorgan Chase & Co. to hold from buy, while upgrading Bank of America Corp. and Wells Fargo & Co. on changing preferences within the banks sector.
• Illumina Inc.’s blocked $7 billion takeover of cancer-detection provider Grail Inc. should never have been probed by the European Union, according to a top court ruling that undermines the EU’s attempt to vet more global deals.
• Cathay Pacific Airways Ltd.’s inspection of its Airbus SE A350 fleet is focused on deformed or degraded fuel lines in the engines of the widebody aircraft, after the discovery of the issue caused multiple flight cancellations as engineers switch out parts.

Key events this week:

• China Caixin services PMI, Wednesday
• Eurozone HCOB services PMI, PPI, Wednesday
• Canada rate decision, Wednesday
• US job openings, factory orders, Beige Book, Wednesday
• Eurozone retail sales, Thursday
• US initial jobless claims, ADP employment, ISM services index, Thursday
• Eurozone GDP, Friday
• US nonfarm payrolls, Friday
• Fed’s John Williams speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.4% as of 12:22 p.m. New York time
• The Nasdaq 100 fell 2.2%
• The Dow Jones Industrial Average fell 1%
• The MSCI World Index fell 1.2%
• Bloomberg Magnificent 7 Total Return Index fell 2.3%
• Philadelphia Stock Exchange Semiconductor Index fell 6%
• The Russell 2000 Index fell 2.3%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%
• The euro fell 0.2% to $1.1046
• The British pound fell 0.3% to $1.3107
• The Japanese yen rose 0.8% to 145.73 per dollar

Cryptocurrencies

• Bitcoin fell 1.9% to $57,863.65
• Ether fell 4.3% to $2,445.62

Bonds

• The yield on 10-year Treasuries declined six basis points to 3.85%
• Germany’s 10-year yield declined six basis points to 2.28%
• Britain’s 10-year yield declined six basis points to 3.99%

Commodities

• West Texas Intermediate crude fell 3.7% to $70.82 a barrel
• Spot gold fell 0.5% to $2,486.72 an ounce

This story was produced with the assistance of Bloomberg Automation.

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