[New York Stock Market] Recession Fears Rekindled by Weak Manufacturing Data... Nasdaq Plummets 3.3%

ISM August Manufacturing PMI Contracts for 5th Consecutive Month
Recession Concerns Resurface
NVIDIA Plummets 9.5%... Semiconductor Stocks Tumble
August Nonfarm Payroll Report to Be Released on 6th Crucial
International Oil Prices Fall Over 4% Amid US-China Economic Slowdown Fears

The three major indices of the U.S. New York Stock Exchange all closed sharply lower on September 3, the first trading day of the month (local time). Investor sentiment rapidly cooled as concerns about an economic recession reignited following disappointing manufacturing data released immediately after the Labor Day holiday. Semiconductor stocks, including AI superstar Nvidia, plunged by 10%.

On that day in the New York stock market, the blue-chip-focused Dow Jones Industrial Average closed at 40,936.93, down 626.15 points (1.51%) from the previous trading day. The large-cap-focused S&P 500 index ended at 5,528.93, down 119.47 points (2.12%). The tech-heavy Nasdaq index plunged 577.33 points (3.26%) to close at 17,136.3, marking its largest drop since August 5.

Semiconductor stocks dragged the market down. Nvidia fell 9.53%. Despite strong earnings last week, the company failed to meet the already high market expectations, and the worsening U.S. manufacturing data reignited fears of economic slowdown, delivering a direct blow. Intel dropped 8.8%. AMD declined 7.82%, while Qualcomm and Broadcom fell 6.88% and 6.16%, respectively.

Manufacturing indicators released that morning showed contraction, spreading recession fears across the market again. According to the Institute for Supply Management (ISM), the August manufacturing Purchasing Managers' Index (PMI) registered 47.2. A manufacturing PMI above 50 indicates expansion, while below 50 signals contraction. This marked the fifth consecutive month that the ISM manufacturing PMI remained below 50, suggesting a continued contraction phase in the manufacturing sector. Employment improved, but factory operations remained sluggish. The manufacturing new orders sub-index fell from 47.4 in July to 44.6 in August. The manufacturing production index dropped from 45.9 to 44.8 during the same period. Conversely, manufacturing employment rose from 43.4 to 46. On the same day, S&P Global's August manufacturing PMI also indicated ongoing contraction, recording 47.9, below both the previous month’s 49.6 and the forecasted 48.

Timothy Fiore, chairman of the ISM manufacturing survey committee, stated, "U.S. manufacturing activity remains in a contraction phase, but the pace of contraction has slowed compared to last month," adding, "Due to current monetary policy and election uncertainties, companies are reluctant to invest in capital and inventory, so demand remains suppressed."

The market had also started sharply lower earlier last month following a shock from the July employment report. Fear of recession led to a sell-off, but the decline was later recovered as recession concerns eased. However, the worsening manufacturing data released on this day caused the first trading day of the month to also start with a sharp decline. September is generally considered the worst month for stock performance throughout the year, so seasonal factors likely added to the dampening of investor sentiment.

Larry Tentarelli, senior technical strategist at Blue Chip Trend Report, pointed out, "The market is currently overreacting to every incoming data point," and "The market has become highly dependent on data."

Investors are focusing on key employment data to be released this week amid concerns about economic slowdown. The most important indicator that will decisively influence the Federal Reserve's (Fed) interest rate decision is the August nonfarm payroll report from the U.S. Department of Labor’s Bureau of Labor Statistics (BLS), scheduled for release on the 6th. According to expert forecasts compiled by Bloomberg, nonfarm payrolls likely increased by 165,000 last month, a significant rise from July’s 114,000. The unemployment rate is expected to have fallen by 0.1 percentage points to 4.2% in August after rising from 4.1% in June to 4.3% in July. Wall Street expects that if nonfarm payrolls fall below 100,000 or the unemployment rate rises above 4.4%, the Fed will implement a "big cut" by lowering interest rates by 0.5 percentage points at the September Federal Open Market Committee (FOMC) meeting. If the labor market cools rapidly, the Fed may increase the rate cut magnitude. Fed Chair Jerome Powell also mentioned in his speech at the Jackson Hole meeting on the 23rd of last month that the timing and pace of rate cuts depend on future data, outlook, and risk balance.

Other employment data releases will follow. On the 4th, the July Job Openings and Labor Turnover Survey (JOLTs) will be released, and on the 5th, ADP’s August private employment report and weekly initial and continuing unemployment claims will be published.

The Fed’s economic conditions report, the Beige Book, will be released on the 4th.

Due to weak manufacturing data, expectations for a big rate cut in September have slightly increased. Currently, the interest rate futures market reflects a 61% probability that the Fed will cut rates by 0.25 percentage points in September and a 39% chance of a 0.5 percentage point cut. The big cut expectation rose slightly from 35% earlier that morning.

Government bond yields are declining. The U.S. 10-year Treasury yield, a global benchmark for bond yields, fell 6 basis points (1 bp = 0.01 percentage points) from the previous trading day to 3.84%, while the 2-year Treasury yield dropped 5 basis points to 3.87%.

International oil prices declined amid demand slowdown forecasts due to economic downturns in the U.S. and China. West Texas Intermediate (WTI) crude oil closed at $70.34 per barrel, down $3.21 (4.4%) from the previous trading day, marking its lowest level since December last year. Brent crude, the global oil price benchmark, ended at $73.75 per barrel, down $3.77 (4.9%).

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street’s fear gauge, surged 42.9% to 21.44.