American stock markets experienced declines this afternoon following the contraction in manufacturing in the world’s largest economy for the fifth consecutive month.
The value of Nvidia, the artificial intelligence leader, plummeted by over £220 billion as its shares dropped nearly 8%. This decline contributed to a 6.5% fall in the index of 30 major US chipmakers. The drop followed disappointing quarterly financial results and forecasts, despite Nvidia’s sales doubling.
The Nasdaq Composite fell by 2.4%, the S&P 500 by 1.4%, and the Dow Jones Industrial Average by 1%.
August manufacturing data from the Institute for Supply Management (ISM) revealed ongoing sector struggles, with contraction persisting for 21 out of the past 22 months. The ISM’s purchasing managers’ index (PMI) registered at 47.2 in August, a slight increase from July’s 46.8. A PMI below 50 indicates contraction.
“Demand remains subdued, as companies are hesitant to invest in capital and inventory due to current federal monetary policy and election uncertainty,” noted Timothy Fiore of the ISM.
Concerns about a slowing US economy triggered a significant market downturn early last month, though financial markets later rebounded on hopes that the Federal Reserve might achieve a soft landing for the economy.
Sam Stovall, chief investment strategist at CFRA Research, described today’s market reaction as “speculation about the Fed.” He added that if economic weakness persists, investors anticipate the Fed might respond with more aggressive interest rate cuts.
After raising its main interest rate to a two-decade high to combat inflation, the Fed is expected to ease rates later this month to support the economy and avoid a recession. Traders are predicting a potential full percentage point cut in interest rates this year, which would be significant according to a Bank of America Global Research report.
The drop in share prices comes as traders await several labor market reports this week, including Friday’s non-farm payrolls data for August. The jobs market has garnered increased attention following July’s report, which indicated a larger-than-expected slowdown and triggered a global selloff in riskier assets.
Friday’s US jobs data is anticipated to influence the Federal Reserve’s outlook on the economy and its plans for interest rate adjustments, which will have global market implications.
Stephen Innes, analyst at SPI Asset Management, warned that Friday’s data could be a crucial test. “A stronger-than-expected payroll number, coupled with a lower unemployment rate, could boost market confidence, suggesting that growth risks may be easing, at least temporarily. Conversely, a disappointing report, especially with a higher unemployment rate, could reignite growth concerns.”
Analysts also noted that September is historically a challenging month for US stocks. Sam North of investment platform eToro pointed out that, on average, the S&P 500’s return in September from 1928 to 2023 has been -1.17%.
