Market Update: U.S. Stocks Fall Amid Economic Concerns
On September 2, 2024, U.S. stock markets experienced a significant downturn, marking their worst day since early August. The S&P 500 index plunged 2.1%, retracting gains made during a three-week winning streak that had brought it close to an all-time high. The Dow Jones Industrial Average declined by 626 points, or 1.5%, while the Nasdaq composite saw a steep drop of 3.3%, primarily driven by losses in prominent tech stocks like Nvidia.
The market fluctuation followed a disappointing report indicating that U.S. manufacturing continued to shrink, largely due to the persistent pressure of high interest rates. Manufacturing has faced contraction for the past two years, and August’s performance fell short of economists’ expectations. Timothy Fiore, chair of the Institute for Supply Management’s manufacturing business survey committee, cited subdued demand and a reluctance among companies to invest as key factors contributing to the decline.
Oil and gas stocks also recorded significant losses, reflecting a 4% drop in crude oil prices due to concerns over global economic health. Major companies such as Exxon Mobil and ConocoPhillips reported losses of 2.1% and 3.5%, respectively, as the price of benchmark U.S. oil hovered near $70 per barrel, significantly lower than the $85 peak observed in April.
This slump in stocks adds to the anxiety that had earlier caused a tumultuous August, which saw the S&P 500 dip nearly 10% from its July record before a rebound fueled by hopes for a stabilized economy. Many market analysts anticipate interest rate cuts by the Federal Reserve later this month as a way to alleviate economic pressures and stave off a recession. Earlier this year, the Fed had raised its main interest rate to a two-decade high in an effort to combat inflation.
A series of economic updates slated for release later in the week, including job openings and service sector growth data, will be critical in determining the level of assistance the economy may require. The highlight of the week will likely be Friday’s jobs report, which economists from Bank of America and Goldman Sachs suggest could influence the magnitude of potential interest rate cuts.
The tech sector has been under particular scrutiny, with Nvidia leading the decline by falling 9.5%. Despite outperforming profit expectations, skepticism remains about whether Tech stocks have become overvalued following the AI-fueled market surge. The so-called "Magnificent Seven" stocks, which contributed significantly to the S&P 500’s early year returns, all fell at least 1.3%.
However, not all sectors were negatively affected. Around 30% of S&P 500 stocks managed to climb, particularly those less sensitive to economic fluctuations such as dividend-paying stocks and consumer staples. Overall, the S&P 500 dropped 119.47 points to close at 5,528.93, while the Dow and Nasdaq fell to 40,936.93 and 17,136.30, respectively. Concurrently, the yield on the 10-year Treasury bond fell to 3.84%, a substantial drop from a peak of 4.70% earlier in the year.
Globally, stock indexes reflected a similar downtrend, with European and Asian markets showing declines amid growing concerns about China’s economic resilience, exacerbated by weakened earnings in sectors such as property development.
As the week unfolds, market participants will closely monitor economic indicators and geopolitical developments, which are crucial in shaping investor sentiment and stock performance.
