Drop in major indexes in September worries ahead of upcoming data

U.S. and Canadian stocks slumped on Tuesday, at the start of one of the market’s historically worst months, ahead of data likely to influence how much the Federal Reserve will lower interest rates.

 

All three U.S. major indexes and the S&P/TSX Composite Index recorded their biggest daily percentage declines since early August. The CBOE Volatility Index, Wall Street’s fear gauge that measures market expectations of stock market swings, jumped 33.2% to 20.72, the biggest daily percentage gain and highest close since early August.

 

Market sentiment weakened as Institute for Supply Management data on Tuesday showed U.S. manufacturing remained subdued despite a modest improvement in August from an eight-month low in July.

 

September is widely regarded as one of the worst months for stock market performance based on data stretching back to the 1950s, said Jason Browne, president at Alexis Investment Partners in Montgomery, Texas.

 

“We had a weak ISM report come out Tuesday 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,” Browne said. “Everybody is reporting about how September is such a horrible month and that tends to feed on itself.”

 

The so-called Magnificent Seven megacap technology stocks, which have led this year’s rally, slumped. Nvidia dropped nearly 10%, shedding US$279 billion from its market capitalization, which finished at US$2.65 trillion.

 

Alphabet fell 3.6%, Apple lost 2.7% and Microsoft shed 1.8%. The Philadelphia SE Semiconductor index fell 7.8%.

 

Nine out of 11 S&P 500 sectors fell, led by declines in technology, energy, communication services and materials.

 

Traders are awaiting several labor market reports ahead of Friday’s non-farm payrolls data for August.

 

The Fed’s meeting on Sept. 17-18 will be closely observed following Chair Jerome Powell’s recent support for easing monetary policy.

 

Odds of a 25-basis point interest rate cut are at 63%, the CME Group’s FedWatch Tool showed, while those for a bigger 50 bps reduction are at 37%.

 

The Dow fell 626.15 points, or 1.51%, to 40,936.93, the S&P 500 dropped 119.47 points, or 2.12%, to 5,528.93 and the Nasdaq Composite slid 577.33 points, or 3.26%, to 17,136.30.

 

Boeing dropped 7.3% after Wells Fargo downgraded the aircraft manufacturer’s shares to “underweight” from “equal weight.”

 

The Canadian benchmark index ended down 303.73 points, or 1.3%, at 23,042.45, its worst day since Aug. 2.

 

Materials led sectoral losses with a 4.2% drop as gold prices declined. Copper prices fell to a two-week low and the energy sector fell 2.1% after oil prices dropped more than 3% on news of sluggish economic growth in China.

 

China’s manufacturing activity sank to a six-month low in August as factory gate prices tumbled and owners struggled for orders, an official survey showed.

 

Markets will be watching the Bank of Canada’s policy meeting on Wednesday, in which it is widely expected to lower its policy rate by 25 basis points for the third time in a row.

 

In Canadian economic data Tuesday, manufacturing activity rose to a five-month high to 49.5 in August as production and new orders fell at slower rates.

 

Declining issues outnumbered advancers by a 2.52-to-1 ratio on the NYSE, which had 297 new highs and 83 new lows. On the Nasdaq, 946 stocks rose and 3,315 fell as declining issues outnumbered advancers by 3.5 to 1.

 

Volume across U.S. exchanges totaled 12 billion shares, up from nearly 11 billion for the 20-day moving average.

 

 

 

This article was first reported by Reuters and The Globe and Mail