Stocks Close Sharply Lower as Chipmakers and Energy Stocks Plunge

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -2.12%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.51%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -3.15%.

Stocks sold off sharply on Tuesday, with the S&P 500 posting a 2-week low and the Nasdaq 100 posting a 2-1/2 week low.  Tuesday’s plunge in chip stocks weighed on the overall market. Also, crude oil prices plummeted more than -3% to an 8-month low, which undercut energy stocks. 

Stocks were undercut by Tuesday’s weaker-than-expected ISM manufacturing and construction spending reports.   US stocks were also undercut by concern that weakness in China’s economy will derail global growth prospects after China’s Aug manufacturing PMI unexpectedly fell -0.3 to a 6-month low of 49.1, weaker than an expected increase to 49.5.

The US Aug ISM manufacturing index rose +0.4 to 47.2, weaker than expectations of 47.5.  The Aug ISM price paid sub-index unexpectedly rose +1.1 to 54.0 versus expectations of a decline to 52.0, which was hawkish for Fed policy.

US July construction spending unexpectedly fell -0.3% m/m, weaker than expectations of a +0.1% m/m increase and the biggest decline in 1-3/4 years.

The financial markets are awaiting fresh US economic news this week that will offer insight into the health of the US economy and help determine the path of the Fed’s interest rate policy.  On Thursday, the Aug ISM services index is expected to ease to 51.1 from 51.4 in July.  Also, Friday’s monthly payroll report is expected to show Aug nonfarm payrolls rose +165,000 from +114,000 in July, and the Aug unemployment rate is expected to ease to 4.2% from 4.3% in July.

The markets are discounting the chances at 100% for a -25 bp rate cut for the September 17-18 FOMC meeting and at 38% for a -50 bp rate cut at that meeting.

Overseas stock markets Tuesday settled lower.  The Euro Stoxx 50 fell back from a 7-week high and closed down -1.22%.  China's Shanghai Composite fell to a 6-3/4 month low and closed down -0.29%.  Japan's Nikkei Stock 225 closed down -0.04%.

Interest Rates

December 10-year T-notes (ZNZ24) Tuesday closed up +14 ticks.  The 10-year T-note yield fell -6.6 bp to 3.837%.  Dec T-notes recovered from a 2-week low Tuesday and posted moderate gains, and the 10-year T-note yield fell back from a 2-week high of 3.930%.  The sharp selloff in stocks Tuesday spurred some safe-haven buying of T-notes.  Also, a -3% plunge in crude prices Tuesday weighed on inflation expectations and boosted T-notes after the 10-year breakeven inflation rate fell to a 1-week low of 2.106%.  T-notes extended their gains on Tuesday’s weaker-than-expected US ISM manufacturing and construction spending reports, dovish factors for Fed policy. 

Supply pressures are negative for T-notes, with as much as $55 billion of corporate debt expected to be issued this week, which prompts bond dealers to short T-notes as a hedge against the incoming supply.   

European government bond yields on Tuesday moved lower.  The 10-year German bund yield fell -6.1 bp to 2.277%.  The 10-year UK gilt yield fell -6.5 bp to 3.990%.

The Eurozone Aug S&P manufacturing PMI was revised upward by +0.2 to 45.8 from the previously reported 45.6.

German May retail sales fell -1.1% y/y, weaker than expectations of -0.7% y/y.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 99% for the September 12 meeting.

US Stock Movers

Chip stocks plunged Tuesday and weighed on the overall market. ON Semiconductor (ON) closed down more than -9% to lead losers in the Nasdaq 100.  Intel (INTC) closed down more than -9% to lead losers in the Dow Jones Industrials.  Also, Nvidia (NVDA) and KLA Corp (KLAC) closed down more than -9%.  Marvell Technology (MRVL), GlobalFoundries (GFS), and Micron Technology (MU) closed down more than -8%.  NXP Semiconductors (NXPI), Advanced Micro Devices (AMD), and Applied Materials (AMAT) closed down more than -7%.  Analog Devices (ADI), Microchip Technology (MCHP), Broadcom (AVGO), Lam Research (LRCX), ASML Holding NV (ASML), and Qualcomm (QCOM) closed down more than -6%. 

Energy producers and energy service providers retreated after the price of WTI crude oil sank more than -3% to an 8-month low.  As a result, APA Corp (APA) closed down more than -6%.  Devon Energy (DVN), Phillips 66 (PSX), Schlumberger (SLB), ConocoPhillips (COP), Diamondback Energy (FANG), Baker Hughes (BKR), Haliburton (HAL), and Valero Energy (VLO) closed down more than -3%.  Exxon Mobil (XOM) and Marathon Oil (MRO) closed down more than -2%.

Mining stocks were under pressure Tuesday after Comex copper futures prices fell more than -3% to a 2-week low.  Freeport McMoRan (FCX) and ArcelorMittal (MT) closed down more than -6%.  Also, Southern Copper (SCCO) closed down more than -5%. 

Defensive consumer durable stocks moved higher with Tuesday’s rout in the broader market.  Molson Coors Beverage (TAP) closed up more than +5% to lead gainers in the S&P 500.  Also, Church & Dwight (CHD), J M Smucker (SJM), and Campbell Soup (CPB) closed up more than +3%.  In addition, Constellation Brands (STZ), PepsiCo (PEP), and Hershey (HSY) closed up more than +2%.  Finally, Clorox (CLX) and Procter & Gamble (PG) closed up more than +1%. 

Boeing (BA) closed down more than -7% after Wells Fargo Securities downgraded the stock to underweight from equal weight with a price target of $119.   

US Steel (X) closed down more than -5% after US presidential candidate Harris said the company should remain domestically owned and operated, which may hurt Nippon Steel’s proposed takeover of US Steel.

Sphere Entertainment (SPHR) closed down more than -4% after Benchmark downgraded the stock to sell from hold.

CME Group (CME) closed down more than -1% after Bank of America Global Research downgraded the stock to underperform from neutral. 

Super Micro Computer (SMCI) closed up more than +1% after CEO Liang said the company doesn’t anticipate any material changes in its fourth quarter of fiscal year 2024 results even after delaying its annual report filing. 

Unity Software (U) closed up more than +1% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $22. 

Southwest Airlines (LUV) closed up more than +2% after Reuters reported that Elliot Investment Management increased its stake in the company to 10% of outstanding shares, which allows the hedge fund to call a special meeting of Southwest’s board of directors.

Visa (V) closed up more than +1% after BNP Paribas Exane upgraded the stock to outperform from neutral with a price target of $325.

Vaxcyte (PCVX) closed up more than +36% after the company’s Vax-31 vaccine, designed to prevent invasive pneumococcal disease, was advanced to a Phase 3 program after it demonstrated robust opsonophagocytic immune response in a previous study. 

Earnings Reports (9/4/2024)

Casey's General Stores Inc (CASY), Ciena Corp (CIEN), Copart Inc (CPRT), Core & Main Inc (CNM), Dick's Sporting Goods Inc (DKS), Dollar Tree Inc (DLTR), Hewlett Packard Enterprise Co (HPE), Hormel Foods Corp (HRL).

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.