In an unsettling turn of events for US equity markets, indexes experienced a significant decline following midday trading on Tuesday, primarily driven by a sharp slump in technology shares. The S&P 500 saw a drop of 1.5%, closing at 5,561.5, while the Nasdaq Composite plummeted 2.5% to settle at 17,269.1.
The Dow Jones Industrial Average also faced a setback, closing 1.2% lower at 41,077.4. This downturn came on the heels of the US observing Labor Day on Monday, which likely contributed to the volatility in the markets following the holiday. Among the various sectors, technology found itself at the bottom of the charts, declining 3.5% during intraday trading.
Prominent players in this sector, including Nvidia (NVDA), Taiwan Semiconductor Manufacturing Company (TSM), and Advanced Micro Devices (AMD), led the charge downward for the mega-cap stocks. Additionally, energy and communication services sectors also faced steep declines, further illustrating a broader pullback in market sentiment.
Conversely, the consumer staples industry group emerged as the top performer of the day, reflecting a defensive mood in the markets as investors shifted toward more stable investments amidst the prevailing uncertainty. Shifting focus to economic indicators, the Institute for Supply Management released its US manufacturing index for August, which increased to 47.2, up from July’s reading of 46.8.
However, this figure fell short of expectations set by a Bloomberg survey, which anticipated an improvement to 47.5. Notably, any reading below 60 signals contraction, a concerning sign for economic growth prospects. The CBOE's Volatility Index (VIX) experienced a sharp increase of 16.4%, climbing to 18.09.
This surge in volatility underscores the growing apprehensions among investors regarding the future trajectory of the markets. On the fixed income front, most Treasury yields saw a reduction, with the 10-year yield dropping by 5.9 basis points to reach 3.85%. Meanwhile, the two-year yield decreased by 4.1 basis points, settling at 3.88%. In commodity news, West Texas Intermediate crude oil reflected a notable decline as well, slumping 4% to $70.59 per barrel, reflecting the bearish atmosphere pervading financial markets. In specific company news, equity analysts at Wells Fargo (WFC) made headlines by downgrading Boeing ($BA) to an underweight position from equal weight.
This downgrade was primarily attributed to a less favorable outlook on the company's free cash flow potential and the expectation of an upcoming equity raise that is likely to further dilute existing shares. Following this downgrade, Boeing's stock plummeted 7.8% during intraday trading, marking it as the worst performer on the Dow on that day.
The price target for Boeing was also revised downwards from $185 to $119, further complicating the company’s market positioning as investors react to new insights from analysts..