US investors were left trembling on the first day of October as US blue chips started the always volatile month with a drop of over 1.3% after the worst reading for the US ISM manufacturing index in over a decade heightened fears over a global recession.
The Dow Jones Industrial Average closed the first session of the new month down 343.79 points, or 1.3% at 26,573.04, while the broader S&P 500 index dropped 1.2% and the tech-laden Nasdaq Composite tumbled 1.1%.
The latest sell-off came after the ISM index of national factory activity dropped by 1.3 points in September to a reading of 47.8, the lowest level since June 2009, and well below economists’ consensus forecast for a rise to 50.1.
A reading below 50 indicates contraction in the manufacturing sector, which accounts for about 11% of the US economy, according to Reuters.
September’s reading marked the second straight month that the index has fallen below the 50 threshold. The index has now declined for six consecutive months.
The weak manufacturing data came hot on the heels of data last week showing a cooling in US consumer spending in August, indicating that President Trump’s 15-month trade war with China is impacting all areas of the world’s biggest economy.
In a statement with the data, the ISM said comments from manufacturers “reflect a continuing decrease in business confidence,” and also noted that “global trade remains the most significant issue.”
Chris Beauchamp, chief market analyst at IG, pointed out: “Central banks are cutting rates, and are it seems keen to cut more, while data continues to point towards economic weakness.”
He said: “That is perhaps the over-riding message from today, as Europe woke up to an Aussie rate cut, then confronted poorer eurozone PMI figures, and then, as the US joined the fray, faced a surprisingly-negative ISM manufacturing figure from the US.”
The analyst added: “Equities escaped from September without suffering too much downside, but the first day of October has shattered hopes that the year-end rally will start immediately.
“The ISM reading is perhaps yet more evidence that the trade wars are beginning to hit the US economy, as respondents point to lower product demand and a fall in sales orders.”
“This will unnerve investors, who have become used to the US remaining relatively insulated from the effects of trade conflict,” Beauchamp concluded.
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