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Big tech groups including Nvidia led a broad US stock market sell-off on Tuesday, as weak data on the state of the manufacturing sector added to investor concerns about an economic slowdown.
The S&P 500 dropped 2.1 per cent on the first trading session since the Labor Day holiday, marking its worst day since a bout of global volatility in early August.
Technology stocks, which have been a drag on the index in recent weeks, were once again the worst-performing sector. Chipmaker Nvidia dropped 9.5 per cent, shedding more than a $250bn in market capitalisation.
The tech-dominated Nasdaq Composite fell 3.3 per cent, while the Philadelphia Semiconductor index was down 7.8 per cent.
“Risk aversion is taking over,” said Dec Mullarkey, managing director at SLC Management, adding that investors were being cautious ahead of critical data on the strength of the labour market due to be published later this week. “Nobody wants to be on the wrong side of what happens with payrolls,” he said.
Big indices were already dipping in early trading but the sell-off gathered pace after the Institute for Supply Management published its monthly gauge of US manufacturing activity. The results were slightly weaker than economists had expected and showed activity contracting for a fifth consecutive month.
The numbers “underwhelmed” and “there wasn’t anything encouraging in the data”, said Ian Lyngen, head of US rates strategy at BMO Capital Markets.
The Vix index, popularly known as “Wall Street’s fear gauge”, rose from 15.6 to 20.7, climbing above its long-term average to its highest level in three weeks. The Vvix, which shows expectations of swings in the Vix itself, jumped from 94 to 130, suggesting investors were wary of further volatility.
The cautious mood was also reflected in government bond markets. The yield on the benchmark 10-year Treasury fell 0.06 percentage points to 3.84 per cent, while the policy-sensitive two-year yield fell 0.04 percentage points to 3.88 per cent.
The ISM release was being particularly closely watched by investors as a much weaker than expected survey last month was one of the sparks that helped start the global sell-off.
Tuesday’s data comes ahead of more crucial labour market figures due to be published on Friday. The non-farm payrolls report is widely seen as the most important data in helping to determine whether the US Federal Reserve will cut interest rates by a quarter or half of a percentage point later this month.
Bank of America said a quarter-point cut was the most likely outcome, but “a very weak August jobs report would change the game by validating recession fears”.
“History suggests that the Fed would respond aggressively, even if inflation is moderately above target,” said BofA.
The US sell-off followed a weak day in European markets. The Europe-wide Stoxx 600 index fell 1 per cent, further retreating from Friday’s all-time high, while London’s FTSE 100 dropped 0.8 per cent.
Brent crude, the global oil benchmark, hit its lowest level of the year, falling as much as 5 per cent to $73.67 a barrel, while West Texas Intermediate, the US benchmark, slid by 4.5 per cent to $70.25.
The falls came amid speculation that a deal to end a dispute between political factions in Libya would help to restore production in the region.
Souring sentiment further was the recent “sluggish factory purchasing managers’ index data out of China”, a big crude importer, said broker Fearnley Securities.
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