U.S. stocks ended lower after a print on domestic manufacturing activity came in at the weakest level in a decade. This drove the S&P 500, Dow and small-cap Russell 2000 (^RUT) indices each to their worst one-day declines in six weeks.
The Institute for Supply Management’s manufacturing purchasing managers’ index (PMI) pointed to contraction in September for a second straight month. The headline PMI fell to 47.8, marking the lowest level since mid-2009 and holding below the neutral level of 50. This fell below consensus expectations for an increase from August’s level of 49.1, according to Bloomberg data.
Coupled with new weak economic data out of Europe, Tuesday’s results stoked fears of a broad-based global economic slowdown.
Here’s where the market settled on Tuesday:
S&P 500 (^GSPC): -1.23%, or 36.43 points
Dow (^DJI): -1.28%, or 343.79 points
Nasdaq (^IXIC): -1.13%, or 90.65 points
U.S. crude oil prices (CL=F): +0.8% to $53.62 per barrel
10-year Treasury yield (^TNX): -3.3 bps to 1.64%
Gold (GC=F): +0.96% to $1,487.10 per ounce
Earlier in the session, the Dow had been up by as many as 129 points.
October volatility
The S&P 500 closed September higher for both the month and quarter. The broad equity market index had its best three-quarter start to the year since 1997, after posting a year-to-date increase of 18.74% through Monday’s close.
“The market got off easy in September, with another rate cut by the Federal Reserve helping to temper concerns about the U.S.-China trade war,” Jessica Rabe, co-founder of DataTrek research, wrote in a note Tuesday. “That said, October is notoriously the most volatile month of the year.”
The VIX – the so-called “fear gauge” measuring volatility in the market – has hit annual highs five times in October since its creation in 1990, Rabe said, tying it with August for the greatest number of VIX peaks versus other months.
The VIX closed September at a reading of 16.24, after averaging at 15.56 for the month. Its peak close for the year-to-date was in early January at 25.45, coming on the heels of a volatile fourth quarter of 2018.
Other market strategists echoed these words of caution.
“What has us worried this October is the fact that September this year was historically calm,” Ryan Detrick, senior market strategist for LPL Financial, wrote in an email. “If we know one thing, it is that markets don’t stay calm forever and after a dull market last month, we could be due for some unusual October volatility.”
And this October, markets are unlikely to get the boost from easier monetary policy that helped quell choppiness in September.
“Fed Funds Futures no longer expect another rate cut in October like they did a week ago, which won’t help markets in terms of continued headline risk from U.S.-China trade negotiations,” Rabe added. “November and December should get better, however, as the market thinks the Fed will cut near-term rates in December. President Trump may also push for more progress on the trade front to instill better consumer confidence for the holidays.”
“Both should help the S&P 500 still end the year on a positive note,” she said.
Overseas markets
Overseas, the Shanghai Stock Exchange and Hong Kong Stock Exchange were closed Tuesday for China’s National Day, which commemorates the 70th anniversary of the Chinese Communist Party’s rule. The Shanghai Stock Exchange will remain closed the rest of the week in observance of this holiday.
In a speech Tuesday for the event, China’s leader Xi Jinping maintained that “there is no force that can shake the foundation” of China, and reiterated a commitment for the central government to “maintain long-term prosperity and stability” in Hong Kong and Macao, which each are semi-autonomous regions.
Amid the celebrations on mainland China, mass demonstrations continued to transpire in Hong Kong. Protests in the region have now carried on for four consecutive months, with an increasing number of violent incidences punctuating what began as peaceful marches. Hong Kong police shot a protestor at close range on Tuesday, according to multiple reports, and deployed tear gas to try and disperse the demonstrators.
Many economists have underscored the importance of the Hong Kong region to the global economy, with nearly 60% of China’s outbound investment channeled through the city, according to Bloomberg data. Harvard economist Carmen Reinhart has suggested the shock in Hong Kong could drag the global economy into a further slowdown or recession, she told Bloomberg TV in August.
Elsewhere, Europe’s major DAX, FTSE 100 and CAC stock indices fell after data on the eurozone’s manufacturing sector contracted for an eighth consecutive month in September.
IHS Markit’s eurozone purchasing managers’ index (PMI) slid further into contractionary territory below the neutral level of 50 to a reading of 45.7, down from 47.0 in August. This marked the lowest print since October 2012. And beneath the headline index, forward-looking indicators, including a weak orders-to-inventory ratio, suggested further deterioration in the coming months.
“Businesses also remained downbeat about the year ahead, with optimism around a seven-year low amid trade war worries, signs of slowing global economic growth and geopolitical concerns, including heightened anxiety over a disruptive Brexit,” Chris Williamson, chief business economist at IHS Markit, said in a statement.
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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