On Tuesday, U.S. equity markets experienced notable declines as key technology stocks faced a downturn, coinciding with a spike in market volatility. Investors were reacting to a decline in government bond yields, which followed a less-than-anticipated rebound in manufacturing indicators. The S&P 500 index fell by 1.6%, concluding the day at 5,557.3.
The Nasdaq Composite saw a steeper decline of 2.6%, finishing at 17,245.8, while the Dow Jones Industrial Average decreased by 1.1% to settle at 41,088.7. This trading day marked the resumption of market activities after the Labor Day holiday. Technology stocks were the weakest performers, showing a 3.5% drop intraday.
Major tech players like Nvidia ($NVDA), Taiwan Semiconductor Manufacturing Company ($TSM), and Advanced Micro Devices ($AMD) were among the hardest hit. In contrast, energy and communication services sectors also faced steep losses. However, the consumer staples sector emerged as the top performer, showcasing a defensive strategy by investors amid the market turbulence. In the arena of economic indicators, the Institute for Supply Management's U.S.
manufacturing index continued to signal contraction. The index improved slightly to 47.2 in August, up from 46.8 in July, yet this failed to meet the anticipated figure of 47.5 reported in a Bloomberg survey. Since reaching the neutral reading of 50 in October 2022, the manufacturing index has remained predominantly below this level, with only one month of improvement in March 2024, marking a significant struggle for the sector.
According to a recent note from Jefferies, the 16-month period of instability below the 50 mark that ended in March is the longest streak since the early 2000s. Thomas Simons, an economist at Jefferies, articulated that the operating environment for capital expenditure investments continues to be notably challenging, particularly while interest rates are held at elevated levels.
He mentioned that the manufacturing sector is enduring a prolonged period of difficulty as rates rise. Market expectations for an interest rate cut during the upcoming Federal Reserve meeting on September 18 showed a slight shift. The probability of a 25 basis-point reduction decreased from 70% to 65% by the afternoon of the same day, as reported by the CME Group's FedWatch Tool.
Additionally, the likelihood of a more substantial 50 basis-point cut increased from 30% to 35%. If the Fed identifies substantial economic weakness, there is a strong possibility of more significant easing beyond the current range of 5.25% to 5.5%. The CBOE Volatility Index (VIX) saw a remarkable rise of 17.4%, reaching a level of 18.25—its highest mark in over two weeks.
Furthermore, Treasury yields experienced declines across the board, with the 10-year yield falling by 5.8 basis points to 3.85%, and the two-year yield dropping 3.1 basis points to 3.89%. In commodity markets, West Texas Intermediate crude oil price experienced a significant drop of 4.5%, landing at $70.26 per barrel, reflecting ongoing concerns about supply and demand dynamics. On the corporate front, equity analysts from Wells Fargo ($WFC) made headlines by downgrading Boeing ($BA) to an underweight rating from equal weight.
This decision arose from a more pessimistic outlook on the company's free cash flow potential, compounded by expectations regarding an imminent equity raise that is anticipated to dilute existing shareholder value. The analysts subsequently reduced their price target for Boeing shares from $185 to $119, leading to a notable 7.3% decline in the stock's price, making it the second worst performer on the Dow. In the precious metals markets, gold declined by 0.4%, trading at $2,518.01 per ounce, while silver saw a sharper dip of 2.9%, pricing at $28.29.
This volatility underscores the ongoing market adjustments in response to economic signals and investor sentiment..