American stock markets fell this afternoon after manufacturing in the world’s largest economy contracted for a fifth month in a row.
More than £220bn was wiped of the value of artificial intelligence giant Nvidia, as its shares dropped by nearly 8pc, helping to pull down the index of 30 leading US chipmakers by 6.5pc. It came less than a week after its quarterly financial results and forecasts disappointed investors, despite its sales doubling.
The Nasdaq Composite fell 2.4pc, the S&P 500 fell 1.4pc and the Dow Jones Industrial Average fell 1pc.
August manufacturing data from the Institute for Supply Management (ISM) pointed to ongoing challenges in the sector, which has now been in contraction for 21 out of the past 22 months.
The institute’s purchasing managers’ index (PMI) data gave a reading of 47.2 in August, up marginally from the 46.8 percent recorded in July. Anything below 50 indicates contraction.
“Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and election uncertainty,” said Timothy Fiore of the ISM.
Worries about a slowing US economy helped send stocks on a scary summertime swoon early last month, but financial markets later rebounded on hopes that the Federal Reserve could pull off a soft landing for the economy.
Sam Stovall, chief investment strategist at CFRA Research, said that the today’s market reaction is “just speculation about the Fed. If there is any kind of economic weakness, investors believe the Fed will respond by lowering interest rates more aggressively.”
After jacking its main interest rate to a two-decade high to beat high inflation, the Fed looks set to ease interest rates later this month in hopes of easing conditions for the economy and avoiding a recession.
Many traders are anticipating the Fed will deliver a full percentage point of cuts to interest rates this year, which is a “recession-sized” amount, according to a Bank of America Global Research report.
The fall in share prices came as traders await a number of labour market reports due during the week, ahead of Friday’s non-farm payrolls data for August.
The jobs market has come under greater scrutiny, after July’s report hinted at a greater-than-expected slowdown, that consequently sparked a global selloff in riskier assets.
On Friday, closely watched US jobs data is expected to influence the Federal Reserve’s take on the American economy and when it will start lowering interest rates. The move will have repercussions through global markets.
Stephen Innes, analyst at SPI Asset Management, warned that Friday’s data “is shaping up to be a significant litmus test”.
He said: “A stronger-than-expected payroll number, paired with a lower unemployment rate, could inject some much-needed confidence into the market, signaling that growth risks might be easing, at least for now.
“If the report disappoints, especially if it pushes the unemployment rate higher, we could quickly see growth concerns flare up again.”
Analysts cautioned investors that September is typically a poor month for US stocks. Sam North, of investment platform eToro, said: “September has historically been a challenging month for US stocks. Between 1928 and 2023, the S&P 500’s return in September is -1.17pc on average.”
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