Stocks Fall With Slew of Economic Data in Focus: Markets Wrap

(Bloomberg) — Stocks retreated at the start of a historically challenging month for the market, with traders bracing for a raft of data that will offer insights about the health of the world’s largest economy.

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Wall Street traders took some risk off the table, following a rally that put the S&P 500 close to all-time highs. US manufacturing activity shrank in August for a fifth month, reflecting faster rates of declines in orders and production. The report marks the start of a busy week of economic data, culminating with the all-important jobs report on Friday.

“The trepidation regarding the recent rise in the unemployment rate will leave the market on edge until Friday morning’s data is in hand,” said Ian Lyngen and Vail Hartman at BMO Capital Markets. “While the data revealed before Friday holds a meaningful degree of event risk, Friday’s release will ultimately define the understanding of the current state of the employment market.”

The Morgan Stanley strategist who foresaw last month’s market correction says stocks that have lagged the rally in US stocks could get a boost if data due Friday provides further evidence of a resilient economy.

A stronger-than-expected payrolls number would likely give investors “greater confidence that growth risks have subsided,” Michael Wilson, chief US equity strategist at the bank, wrote in a research note.

The S&P 500 dropped 1%. The Nasdaq 100 slid 1.5%. Nvidia Corp. led losses in chipmakers. Energy shares got hit as Brent oil fell below $75, erasing its 2024 gains. Boeing Co. tumbled on an analyst downgrade. The Russell 2000 of smaller firms lost 1.2%.

Treasury 10-year yields declined six basis points to 3.84%. Around 29 issuers are looking to sell new US investment-grade bonds Tuesday, according to an informal survey of debt underwriters. The Japanese yen climbed 1% against the dollar.

US equities led the net selling across global equities last week as hedge funds trimmed their long positions, according to Morgan Stanley’s weekly prime brokerage data as of August 29.

But to hedge funds, it’s time to prepare for what could be a volatile month ahead. September has been the biggest percentage loser for both the S&P 500 and the Dow Jones Industrial Average since 1950, according to the Stock Trader’s Almanac.

The equity market rally may stall near record highs even if the Fed starts a highly anticipated rate-cutting cycle, according to JPMorgan Chase & Co. strategists.

The team led by Mislav Matejka — who has been among the most bearish voices on stocks this year — said that any policy easing would be in response to slowing growth, making it a “reactive” reduction.

Upcoming readouts on the US labor market will give policymakers insight into the need for further rate reductions after an all-but-certain cut in a little more than two weeks.

This coming Friday, the August jobs report is expected to show payrolls in the world’s largest economy increased by about 165,000, based on the median estimate in a Bloomberg survey of economists.

While above the modest 114,000 gain in July, average payrolls growth over the most recent three months would ease to a little more than 150,000 — the smallest since the start of 2021. The jobless rate probably edged down in August, to 4.2% from 4.3%.

Corporate Highlights:

Southwest Airlines Co. climbed after Evercore ISI upgraded the company to outperform from inline.
Vice President Kamala Harris joined President Joe Biden in declaring that United States Steel Corp. should remain domestically owned and operated, the latest headwind to the proposed sale of the company to Japan-based Nippon Steel Corp.
Deutsche Bank AG cut the recommendation on JPMorgan Chase & Co. to hold from buy, while upgrading Bank of America Corp. and Wells Fargo & Co. on changing preferences within the banks sector.
Illumina Inc.’s blocked $7 billion bid for cancer-detection provider Grail Inc. should never have been probed by the European Union, according to a top court ruling that strikes at the heart of the EU’s attempt to vet more global deals.
Cathay Pacific Airways Ltd.’s inspection of its Airbus SE A350 fleet is focused on deformed or degraded fuel lines in the engines of the widebody aircraft, after the discovery of the issue caused multiple flight cancellations as engineers switch out parts.

Key events this week: