S&P 500 Suffers Biggest Decline Since August: Market Recap

US manufacturing activity has contracted for the fifth consecutive month, adding to market jitters as companies rushed into the bond market on what became the busiest day on record. Stocks faced a steep decline at the onset of September, historically a challenging month for the market, as investors brace for economic data that could determine the Federal Reserve’s next moves on interest rates.

Wall Street traders shifted away from risk, leading the S&P 500 to its worst decline since the August 5th sell-off. After a rally that brought the benchmark close to its all-time highs, technology stocks—particularly Nvidia—suffered significant losses. Energy shares also tumbled as oil erased its 2024 gains, while bonds saw an uptick. With inflation expectations relatively stable, focus has turned to the health of the US economy, where further signs of weakness could accelerate Federal Reserve policy easing.

Key market movements included:

• The S&P 500 fell by 1.6%.
• The Nasdaq 100 dropped 2.5%.
• The Dow Jones Industrial Average decreased by 1.2%.
• The Russell 2000, representing small-cap firms, slid 2.7%.

Notable company performances:

• Nvidia plunged 7.5%.
• Boeing Co. sank 8% following an analyst downgrade.
• The VIX, Wall Street’s “fear gauge,” rose above 18.

In the bond market, the yield on the 10-year Treasury note decreased by five basis points to 3.85%. A record number of blue-chip companies entered the corporate bond market, capitalizing on lower borrowing costs ahead of the US presidential election. The yen surged as Bank of Japan Governor Kazuo Ueda signaled that the central bank might continue raising rates if economic conditions align.

Market participants are now anticipating that the Federal Reserve will cut its rate by a full percentage point by the end of 2024, possibly including a rare half-point reduction at one of the three remaining meetings this year. Furthermore, expectations are growing for a more than two-percentage-point decrease in the benchmark rate over the next 12 months, marking the steepest drop outside of a recession since the 1980s.

Adding to the busy economic calendar, US manufacturing activity shrank in August for the fifth consecutive month. All eyes are now on the upcoming August jobs report, with forecasts suggesting payrolls will have increased by about 165,000—higher than July’s 114,000 gain, but with average payroll growth over the last three months dipping to the lowest level since early 2021. The unemployment rate is expected to have edged down to 4.2% from 4.3%.

Corporate Highlights:

• Boeing Co. (BA): Shares plummeted after Wells Fargo downgraded the stock to a sell-equivalent rating, citing limited upside potential.
• United States Steel Corp. (X): VP Kamala Harris joined President Biden in asserting that the company should remain under domestic ownership, complicating its potential sale to Japan’s Nippon Steel Corp.
• JPMorgan Chase & Co. (JPM): Deutsche Bank downgraded the stock to hold from buy while upgrading Bank of America Corp. and Wells Fargo & Co. due to shifting preferences in the banking sector.
• Illumina Inc. (ILMN): A top EU court ruled that the European Union should not have reviewed Illumina’s blocked $7 billion takeover of Grail Inc., a decision that undermines the EU’s effort to scrutinize more global mergers.
• Cathay Pacific Airways Ltd. (CPCAY): The airline is inspecting its Airbus SE A350 fleet for deformed or degraded fuel lines, a discovery that led to multiple flight cancellations as engineers work to replace the affected parts.