S&P 500 Sees Biggest Slide Since August Meltdown: Markets Wrap

(Bloomberg) — The world’s largest technology companies dragged down stocks at the start of a historically tough month, with traders bracing for data that will show the health of the US economy and the size of Federal Reserve rate cuts.

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Wall Street traders took risk off the table, following a rally that put the S&P 500 close to its all-time highs. The US equity benchmark saw its worst slump since the Aug. 5 market meltdown. A closely watched gauge of chipmakers tumbled 5%, led by a plunge in Nvidia Corp. Energy shares also got hit as Brent oil fell below $75, erasing its 2024 gains.

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. A contrarian sentiment gauge from Bank of America Corp. rose to its highest level in nearly two and a half years last month — creeping closer to a contrarian “sell” signal.

“For all years since World War II, August and September saw the S&P 500 endure a double-dose of declines,” said Sam Stovall at CFRA. “Yet history now advises investors to fasten their safety belts, since during election years, this sequential seasonal slippage has shifted to September and October.”

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 said earlier this week. The team led by Mislav Matejka said that any policy easing would be in response to slowing growth, making it a “reactive” reduction.”

Meantime, 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 Friday’s jobs data provide evidence of a resilient economy. A stronger-than-expected payrolls number would likely give investors “greater confidence that growth risks have subsided,” Michael Wilson wrote.

The S&P 500 dropped 1.3%. The Nasdaq 100 slid 2.1%. The Dow Jones Industrial Average fell 1%. Boeing Co. sank about 9% on an analyst downgrade. The Russell 2000 of smaller firms lost 2%.

Treasury 10-year yields fell six basis points to 3.85%. A record number of blue-chip firms are swarming the corporate-bond market, taking advantage of cheaper borrowing costs ahead of the US presidential election. The yen climbed about 1% as Bank of Japan Governor Kazuo Ueda reiterated the central bank will continue to raise rates if the economy and prices perform as expected.

US manufacturing activity shrank in August for a fifth month. The data marked the start of a busy week of economic figures, 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. “ISM Manufacturing underwhelmed in August. Overall, there wasn’t anything encouraging in the data, but this isn’t particularly new for the US manufacturing sector.”

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%.

US interest-rate strategists predict bigger market reaction if Friday’s August employment data is weaker than anticipated, according to the limited quantity of weekly research reports published around the holiday weekend.

“This week’s jobs report, while not the sole determinant, will likely be a key factor in the Fed’s decision between a 25 or 50 bps rate cut,” said Jason Pride and Michael Reynolds at Glenmede. “Even modest signals in this week’s jobs report could be a key decision point as to whether the Fed takes a more cautious or aggressive approach to rate cuts.”

Corporate Highlights:

Boeing Co. slumped after Wells Fargo & Co. published a rare bearish take on the stock, saying it’s hard to see upside in the shares.
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: