Renewed Economic Concerns Contribute To Sell-Off On Wall Street

(RTTNews) - Stocks moved sharply lower over the course of the trading day on Tuesday, with the major averages more than offsetting the strong gains posted last Friday. With the steep drop, the Dow pulled back well off the record closing high set in the previous session.

The major averages climbed off their worst levels going into the close but continued to post significant losses. The Nasdaq plunged 577.33 points or 3.3 percent to 17,136.30, the S&P 500 dove 119.47 points or 2.1 percent to 5,528.93 and the Dow tumbled 626.15 points or 1.5 percent to 40,936.93.

The sell-off on Wall Street came after the Institute for Supply Management released a report showing a continued contraction by U.S. manufacturing activity in the month of August.

The ISM said its manufacturing PMI inched up to 47.2 in August from 46.8 in July, but a reading below 50 still indicates contraction. Economists had expected the index to rise to 47.5.

The data led to renewed concerns about the economic outlook, which contributed to the sell-off seen in early August.

"Manufacturing employment shrank for the third consecutive month as manufacturing activity slowed in recent months," said Jeffrey Roach, Chief Economist for LPL Financial.

He added, "Although the manufacturing sector holds a smaller portion of the macro economy now than in previous cycles, investors should still position themselves for a broader slowdown throughout the balance of this year."

A separate report released by the Commerce Department unexpectedly showed a modest decrease by U.S. construction spending in the month of July.

The weakness on Wall Street also came as some traders look to cash in on the previous session's gains amid lingering uncertainty about the outlook for interest rates.

The Federal Reserve is almost universally expected to lower rates at its next meeting later this month, but there is some disagreement about the pace of rate cuts.

According to CME Group's FedWatch Tool, there is a 63.0 percent chance of a quarter point rate cut later this month and a 37.0 percent chance of a half point rate cut.

Monthly jobs data will be in focus later this week, with economists currently expecting employment to climb by 165,000 jobs in August after rising by 114,000 jobs in July.

The unemployment rate is expected to edge down to 4.2 percent in August after rising to 4.3 percent in July, reaching its highest level since October 2021.

Sector News

Semiconductor stocks pulled back sharply after turning in a strong performance last Friday, resulting in a 7.8 percent nosedive by the Philadelphia Semiconductor Index. AI darling and market leader Nvidia (NVDA) plummeted by 9.5 percent.

Substantial weakness was also visible among steel stocks, as reflected by the 5.1 percent plunge by the NYSE Arca Steel Index.

U.S. Steel (X) helped lead the sector lower, tumbling by 6.1 percent after Vice President Kamala Harris expressed opposition to the sale of the steel producer to Japan's Nippon Steel.

Oil service stocks also saw significant weakness amid a steep drop by the price of crude oil, dragging the Philadelphia Oil Service Index down by 4.9 percent.

Gold, computer hardware and housing stocks also showed notable moves to the downside, while interest rate-sensitive utilities stocks were among the few groups to buck the downtrend.

Other Markets

In overseas trading, most stock markets across the Asia-Pacific region saw modest weakness during trading on Monday. Japan's Nikkei 224 Index closed just below the unchanged line, while China's Shanghai Composite Index dipped by 0.3 percent.

The major European markets showed more significant moves to the downside on the day. While the German DAX Index slumped by 1.0 percent, the French CAC 40 Index slid by 0.9 percent and the U.K.'s FTSE 100 Index fell by 0.8 percent.

In the bond market, treasuries regained ground after trending lower over the past several sessions. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, slid 6.7 basis points to 3.844 percent.

Looking Ahead

Reports on the U.S. trade deficit, factory orders and job openings may attract attention on Wednesday along with the Fed's Beige Book.