Global stocks experienced a sharp decline on Tuesday, with Wall Street leading the downturn, as disappointing manufacturing data stoked fears of a potential slowdown in the US economy.
The S&P 500 dropped 1.4%, pushing the benchmark index more than 1.5% below its record high from mid-July. Technology stocks took an even bigger hit, with the Nasdaq Composite falling 2.4%—its steepest decline since early August—while the Philadelphia Semiconductor index plunged over 5%.
The slide was triggered by the Institute for Supply Management’s (ISM) report showing that US manufacturing activity contracted for the fifth straight month in August, coming in slightly weaker than expected. This added to growing concerns that the US could be headed for an economic downturn.
Ian Lyngen, head of US rates strategy at BMO Capital Markets, noted that the data “underwhelmed” and offered “nothing encouraging.” The ISM report was closely watched, as the previous month’s unexpectedly low reading had contributed to a major market sell-off in early August.
The weak manufacturing data comes just days before the release of Friday’s key US non-farm payrolls report, which could significantly influence the Federal Reserve’s upcoming decision on whether to cut interest rates by a quarter or half a percentage point later this month.
Bank of America maintained that a quarter-point cut is still the most likely outcome, but warned that “a very weak August jobs report would change the game by validating recession fears.” The bank added that historical patterns suggest the Fed would respond aggressively, even if inflation remains slightly above target.
European markets were also affected, with the Stoxx Europe 600 index falling 1%, further retreating from Friday’s all-time high, while London’s FTSE 100 declined 0.8%.
In the commodities market, Brent crude oil prices hit their lowest point of the year, dropping 4.4% to $74.15 a barrel. West Texas Intermediate followed suit, sliding 3.7% to $70.81. These declines were partly driven by speculation that a resolution to the political dispute in Libya could restore oil production in the region, coupled with weak factory PMI data from China, a major oil importer, which further dampened market sentiment.
