The tech love affair being tested

For the start of September, read the start of August. Neither month is traditionally great for stock investors. August started poorly, as we know, after some weak employment data spooked equity investors. This month, it’s the turn of a weak ISM Manufacturing report to spook investor sentiment. The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index for August came in at 47.2, a small improvement from July but worse than the consensus forecast. It was the activity measure’s fifth straight month below 50, and remains in contraction territory.

The love affair with tech is waning as stocks such as Nvidia fell 10%, Intel and AMD all saw large selloffs. The NASDAQ index fell over 3%, not helped by the DOJ, as several chip companies, including Nvidia, were subpoenaed in search of evidence that the chipmaker violated antitrust laws. Nerves will be further tested this week as we get another batch of employment data. Tomorrow, the Bureau of Labor Statistics Job Openings and Labor Turnover Survey will be presented at the end of July, and then, on Friday, the August employment report will be delivered. The Vix index jumped over 30%, underscoring the sense of calm that has left stock markets. Commodity markets also took a hit as copper prices dropped, as did the price of oil, and demand for fixed income soared as yields fell. Oh yes, and the Yen rallied.

Aside from all the headlines, one could feel there is little incentive to chase stocks at present, and a period on the sidelines is understandable. Signs of economic slowdown continue as the JP Morgan global PMI Manufacturing index falls below 50 for the second month running. Geopolitical risk is rising again, and China’s stock market continues to fall as there seems to be little in the way of encouraging news from that region.  The call for the Federal Reserve to cut by 50 basis points later in the month is growing and will continue to grow. On the bright side, a September sell-off usually sets up the pre-Christmas rally for the final quarter. We shall also see if the recent modest upturn in the UK economy is likely to continue as we get the final results of monthly services and composite Purchasing Manager surveys. Both indexes are forecast to pick up again this month.