Shares Get Hit as Bonds Upward thrust With Financial system in Center of attention: Markets Wrap

(Bloomberg) — Stocks got hit at the start of a historically tough month for the market, with traders bracing for a raft of data that will offer insights about the health of the world’s largest economy

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Wall Street traders took some risk off the table, following a rally that put the S&P 500 close to all-time highs. US manufacturing activity shrank in August for a fifth month, reflecting faster rates of declines in orders and production. The report marks the start of a busy week of economic figures, culminating with the all-important jobs report on Friday.

“The trepidation regarding the recent rise in the unemployment rate will leave the market on edge until Friday morning’s data is in hand,” said Ian Lyngen and Vail Hartman at BMO Capital Markets. “ISM Manufacturing underwhelmed in August. Overall, there wasn’t anything encouraging in the data, but this isn’t particularly new for the US manufacturing sector.”

The Morgan Stanley strategist who foresaw last month’s market correction says stocks that have lagged the rally in US stocks could get a boost if data due Friday provides further evidence of a resilient economy.

A stronger-than-expected payrolls number would likely give investors “greater confidence that growth risks have subsided,” Michael Wilson wrote in a research note.

The S&P 500 dropped 1.3%. The Nasdaq 100 slid 1.8%. Nvidia Corp. led losses in chipmakers. Energy shares tumbled as Brent oil fell below $75, erasing its 2024 gains. Boeing Co. sank on an analyst downgrade. The Russell 2000 of smaller firms lost 1.8%.

Treasury 10-year yields fell seven basis points to 3.84%. A record number of blue-chip firms are swarming the corporate-bond market, taking advantage of cheaper borrowing costs ahead of the US presidential election. The yen climbed 1% as Bank of Japan Governor Kazuo Ueda reiterated the central bank will continue to raise rates if the economy and prices perform as expected.

A contrarian sentiment gauge from Bank of America Corp. rose to its highest level in nearly two and a half years last month as Wall Street’s enthusiasm for stocks intensified amid improving market breadth and dovish comments from from Federal Reserve Chair Jerome Powell at the Jackson Hole symposium.

The so-called Sell-Side Indicator (SSI), a measure that tracks strategists’ average recommended US stock allocations in a balanced fund, climbed 61 basis points to 56.2% in August, a team led by Savita Subramanian wrote. The measure is at the highest level since January 2022 and creeping closer to contrarian “sell” signal.

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US equities led the net selling across global equities last week as hedge funds trimmed their long positions, according to Morgan Stanley’s weekly prime brokerage data as of August 29.

September has been the biggest percentage loser for both the S&P 500 and the Dow Jones Industrial Average since 1950, according to the Stock Trader’s Almanac.

The equity market rally may stall near record highs even if the Fed starts a highly anticipated rate-cutting cycle, according to JPMorgan Chase & Co. strategists said earlier this week.

The team led by Mislav Matejka — who has been among the most bearish voices on stocks this year — said that any policy easing would be in response to slowing growth, making it a “reactive” reduction.

Upcoming readouts on the US labor market will give policymakers insight into the need for further rate reductions after an all-but-certain cut in a little more than two weeks.

This coming Friday, the August jobs report is expected to show payrolls in the world’s largest economy increased by about 165,000, based on the median estimate in a Bloomberg survey of economists.

While above the modest 114,000 gain in July, average payrolls growth over the most recent three months would ease to a little more than 150,000 — the smallest since the start of 2021. The jobless rate probably edged down in August, to 4.2% from 4.3%.

Corporate Highlights:

• Boeing Co. tumbled as Wells Fargo & Co. gave the planemaker a rare negative analyst rating, moving to underweight from equal-weight.

• Southwest Airlines Co. climbed after Evercore ISI upgraded the company to outperform from inline.

• Vice President Kamala Harris joined President Joe Biden in declaring that United States Steel Corp. should remain domestically owned and operated, the latest headwind to the proposed sale of the company to Japan-based Nippon Steel Corp.

• Deutsche Bank AG cut the recommendation on JPMorgan Chase & Co. to hold from buy, while upgrading Bank of America Corp. and Wells Fargo & Co. on changing preferences within the banks sector.

• Illumina Inc.’s blocked $7 billion bid for cancer-detection provider Grail Inc. should never have been probed by the European Union, according to a top court ruling that strikes at the heart of the EU’s attempt to vet more global deals.

• Cathay Pacific Airways Ltd.’s inspection of its Airbus SE A350 fleet is focused on deformed or degraded fuel lines in the engines of the widebody aircraft, after the discovery of the issue caused multiple flight cancellations as engineers switch out parts.

Key events this week:

• China Caixin services PMI, Wednesday

• Eurozone HCOB services PMI, PPI, Wednesday

• Canada rate decision, Wednesday

• US job openings, factory orders, Beige Book, Wednesday

• Eurozone retail sales, Thursday

• US initial jobless claims, ADP employment, ISM services index, Thursday

• Eurozone GDP, Friday

• US nonfarm payrolls, Friday

• Fed’s John Williams speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.3% as of 10:34 a.m. New York time

• The Nasdaq 100 fell 1.8%

• The Dow Jones Industrial Average fell 1.1%

• The Stoxx Europe 600 fell 0.8%

• The MSCI World Index fell 1.2%

• Bloomberg Magnificent 7 Total Return Index fell 1.8%

• Philadelphia Stock Exchange Semiconductor Index fell 4.8%

• The Russell 2000 Index fell 1.8%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%

• The euro fell 0.3% to $1.1042

• The British pound fell 0.3% to $1.3100

• The Japanese yen rose 1% to 145.50 per dollar

Cryptocurrencies

• Bitcoin fell 1.9% to $57,910.01

• Ether fell 3.9% to $2,454.46

Bonds

• The yield on 10-year Treasuries declined seven basis points to 3.84%

• Germany’s 10-year yield declined eight basis points to 2.26%

• Britain’s 10-year yield declined nine basis points to 3.97%

Commodities

• West Texas Intermediate crude fell 4% to $70.59 a barrel

• Spot gold fell 0.8% to $2,479.58 an ounce

This story was produced with the assistance of Bloomberg Automation.

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