US markets slide as September weakness sets in, Fed data in focus

US market weakens: US stock markets faced a downturn on Tuesday, marking the beginning of one of the historically weakest months for equities, with traders closely watching upcoming economic data that could impact Federal Reserve interest rate decisions.

The S&P 500, Nasdaq, and Dow Jones are poised to experience their steepest declines since early August. Market sentiment was dampened following a report from the Institute for Supply Management, which indicated that US manufacturing remained weak, despite a slight uptick in August from a low in July.

Seasonal market trends

September has long been considered one of the least favourable months for stock performance, a trend observed since the 1950s, according to Jason Browne, President at Alexis Investment Partners in Montgomery, Texas.

"We saw a disappointing ISM report this morning, but we believe seasonal factors are playing a significant role, especially given the strong performance earlier in the year until last month," Browne said. “The negative perception of September tends to reinforce itself.”

Tech stocks hit hard

Out of the 11 sectors in the S&P 500, eight declined, with technology, energy, communication services, and industrial stocks leading the losses. The major tech stocks that have driven this year's gains, including Nvidia, which fell 9 per cent, and Microsoft, which lost 1.7 per cent, also suffered notable declines.

By 3 pm ET, the Dow Jones Industrial Average had dropped 615.24 points, or 1.48 per cent, to 40,947.84. The S&P 500 fell 111.04 points, or 1.97 per cent, to 5,537.36, and the Nasdaq Composite slid 534.82 points, or 3.02 per cent, to 17,178.80.

Fed meeting in focus

Investors are now awaiting several labor market reports ahead of Friday’s non-farm payrolls data for August. The upcoming Federal Reserve meeting later this month is expected to be closely scrutinised, particularly following Chair Jerome Powell’s recent endorsement of monetary policy easing.

The CME Group’s FedWatch Tool indicates a 63 per cent probability of a 25-basis point rate cut, while a larger 50 basis point reduction has a 37 per cent chance.

Tesla fell 1.5 per cent after reports emerged that the company plans to introduce a six-seat variant of its Model Y in China starting late 2025. Boeing also saw a significant decline, losing 7.7 per cent after Wells Fargo downgraded the company’s shares from "equal weight" to "underweight."