The stock market is doing some September cleaning.
Market participants returned from the Labor Day weekend to some weak manufacturing numbers, so they’re rotating away from technology and other highflying sectors.
The S&P 500 was down 1.4%, while the Nasdaq Composite was down 2.3%. The Dow was down 450 points, or 1.1%. At the sector level, consumer staples, real estate, health care, and utilities were all rising. On the other end was the technology sector, which was down 3.2%. Nvidia, the poster child for bets on AI exuberance, was down 7.2%. Adding to the messy trading was a decline in oil futures that weighed on energy stocks.
The Russell 2000, which has recently represented a bet on lower interest rates paired with resilient corporate earnings growth, was down 2.2%.
Sevens Report Research’s Tom Essaye told Barron’s that while the latest ISM manufacturing survey was weak, market participants were also rotating out of this year’s winners and turning to some underperforming sectors.
“The market was pretty resilient the last couple weeks on light volumes, and now people are coming back in, looking forward, and reasonably surmising that markets could be more volatile in the next couple of months, and probably just taking a little bit off the table,” he says.
That’s not to say Wall Street is sanguine on the economy. Friday’s employment report will be a major test for the stock market’s rally. Wall Street has shifted its focus from hoping for interest-rate cuts as soon as possible to now taking a more nuanced approach where it won’t root for steeper cuts if that means the economy is about to fall off a cliff.
“For the first time in years, the market would welcome a number as hot as could be,” Essaye says. “If you get more weakening in the labor market, then a hard landing becomes much more probable. And that’s obviously not priced in at all.”