NEW YORK, Oct 2 ― The S&P 500 and Dow suffered their worst tumbles in over a month yesterday after data showed US factory activity shrank in September to its weakest in over a decade, ratcheting up fears that the US-China trade war is hobbling the world's largest economy.
Investors moved to the safety of US Treasuries after the ISM report showed its manufacturing activity index at 47.8, falling further from August's sharp contraction and below economists' expectations of 50.1. A reading below 50 indicates contraction.
With lingering trade tensions weighing on exports, the US data mirrored similar patterns in the euro zone, Japan, the United Kingdom and China.
The S&P industrials index dropped 2.4 per cent, the most among the 11 major S&P sectors. The materials and energy indexes both fell 2.3 per cent. All 11 sectors lost ground.
A jobs report on Friday is expected to shed further light on US economic strength.
“This is a bad number, fitting in with the world’s manufacturing recession,” Jim Bianco, head of Bianco Research in Chicago, said of the ISM report. “I think the market is right to be concerned, but we will have to see whether other manufacturing numbers in the US bear that out, not the least of which being the manufacturing payroll numbers on Friday.”
Despite a prolonged US-China trade war that has hammered global growth, confidence in the domestic economy has helped the benchmark S&P 500 climb about 17 per cent this year.
Thomas Simons, a Jefferies economist, said the manufacturing contraction does not underpin a wider softening in the US economy, as it was the result of several factors, including Boeing Co's production issues relating to its best-selling jets.
“Manufacturing itself is in a recession, but it does not mean that the overall economy is in a recession.”
The Dow Jones Industrial Average fell 1.28 per cent to end at 26,573.04, while the S&P 500 lost 1.23 per cent to 2,940.25. Both indexes had their biggest one-day dip since August 23, when US President Donald Trump demanded that American companies seek alternatives to doing business with China.
The Nasdaq Composite dropped 1.13 per cent to end at 7,908.69.
The Cboe Volatility Index, or VIX, an options-based gauge of investor anxiety, rose 2.3 points to 18.56, its highest close in about a month.
Shares of online brokerage E*Trade Financial tumbled 16.4 per cent, the most on the S&P 500, after rival Charles Schwab Corp said it would remove commissions for online trading of stocks, ETFs and options listed on US or Canadian exchanges.
Charles Schwab's shares slumped 9.7 per cent.
McDonald's Corp dropped 2.7 per cent after JP Morgan said the fast food chain's third-quarter same-store sales would be softer than analysts' estimates.
Shares of chipmaker Xilinx Inc declined 4.1 per cent after KeyBanc lowered its rating to “sector weight.”
In one of the few bright spots, Ulta Beauty Inc advanced 6.1 per cent after an independent director bought shares.
Stitch Fix rose 1 per cent in extended trade after the apparel seller's quarterly earnings per share beat analysts' estimates.
As the final quarter of 2019 kicks off, investors will be focusing on a range of factors, beginning with the high-stakes Sino-US trade talks in early October, corporate earnings and the Fed's next policy meeting.
Declining issues outnumbered advancing ones on the NYSE by a 2.76-to-1 ratio; on Nasdaq, a 3.29-to-1 ratio favoured decliners.
The S&P 500 posted 12 new 52-week highs and 9 new lows; the Nasdaq Composite recorded 28 new highs and 131 new lows.
Volume on US exchanges was 7.3 billion shares, compared with the 7.2 billion average for the full session over the last 20 trading days. ― Reuters
