U.S. Stocks Slump Ahead of Key Data and September's Historically Weak Performance
U.S. stocks experienced a significant decline on Tuesday, marking the start of September, a month historically known for its poor market performance. This downturn comes ahead of crucial data releases that are expected to influence the Federal Reserve's interest rate decisions.
The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all witnessed their largest daily percentage drops since early August. The majority of S&P 500 sectors faced losses, with technology, energy, communication services, and materials leading the decline.
The Institute for Supply Management's data released on Tuesday indicated that U.S. manufacturing remained subdued despite a slight improvement in August compared to the eight-month low in July. This news, coupled with the historical underperformance of the market in September, contributed to the weakening market sentiment.
"We had a weak ISM report come out this morning, but we do believe seasonality is a big factor here, especially when you've had such a solid performance for the year until the end of last month," said Jason Browne, president at Alexis Investment Partners.
The so-called "Magnificent Seven" megacap technology stocks, which have been driving the market rally this year, also experienced a slump. Nvidia dropped nearly 10%, shedding a record $279 billion from its market capitalization, marking the largest single-day decline in market value for a U.S. company.
The Dow Jones Industrial Average fell by 626.15 points, the S&P 500 dropped by 119.47 points, and the Nasdaq Composite slid by 577.33 points. The CBOE Volatility Index, a gauge of market volatility, jumped by 33.2%, indicating heightened investor anxiety.
Traders are now awaiting key labor market reports, including Friday's non-farm payrolls data for August, before the Federal Reserve's meeting on September 17-18. Chair Jerome Powell's recent comments suggesting a potential easing of monetary policy have fueled speculation about the size of the upcoming interest rate cut.
The market is currently anticipating a 25 basis point cut with a 63% probability, while a 50 basis point reduction holds a 37% chance.