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Big tech groups including Nvidia led a broad sell-off in U.S. stocks on Tuesday as weak manufacturing data fueled investor concerns about a slowing economy.
The S&P 500 fell 2.1% in the first trading session after the Labor Day holiday, its worst day since the start of the global volatility at the beginning of August.
Technology stocks, which have dragged down the index in recent weeks, were again the worst-performing sector. The tech-heavy Nasdaq Composite fell 3.3%, while the Philadelphia Semiconductor Index fell 7.8%.
Chipmaker Nvidia They closed 9.5% lower, wiping out more than $250 billion in market capitalization. Shares fell another 2.4% in after-hours trading after Bloomberg reported that the U.S. Justice Department had issued a subpoena to the company, deepening its antitrust investigation.
A person familiar with the matter confirmed the subpoena, which comes as the Justice Department is assessing whether Nvidia is using its power as a primary supplier of chips for AI data centers to disadvantage competitors. In a statement, Nvidia said it “wins on merit, as reflected in our benchmark results and the value to customers who can choose whichever solution works best for them.” The Justice Department declined to comment.
“Risk aversion is taking over,” said Dec Mullarkey, managing director at SLC Management, adding that investors are cautious ahead of critical data on the strength of the labor market due later this week. “Nobody wants to be on the wrong side of what's happening with payrolls,” he said.
The selloff spread to Asian markets on Wednesday, led by the region's technology and semiconductor supply chain companies. Japan's broad Topix index fell more than 3%, with chipmaker Tokyo Electron shedding more than 7%. Korea's Kospi fell nearly 3%, with memory chipmaker SK Hynix shedding about 7%. Taiwan's TSMC lost more than 4.6%.
The U.S. selloff gained momentum on Tuesday after the Institute for Supply Management released its monthly measure of U.S. manufacturing activity. The results were slightly weaker than economists had expected and showed activity contracting for a fifth straight month.
The numbers are “disappointing” and “there's nothing encouraging in the data,” said Ian Lingen, head of U.S. rates strategy at BMO Capital Markets.
The Vix, widely known as the “Wall Street fear gauge,” rose from 15.6 to 20.7, rising above its long-term average to its highest level in three weeks. Vvix, which measures expectations for fluctuations in the Vix itself, jumped from 94 to 130, suggesting investors are wary of further volatility.
The cautious mood was also reflected in government bond markets. The yield on 10-year Treasury notes fell 0.06 percentage point to 3.84%, while the yield on policy-sensitive two-year notes fell 0.04 percentage point to 3.88%.
Investors were particularly keen to watch the ISM data release, as a much weaker-than-expected survey last month was one of the sparks that helped start the global sell-off.
Tuesday's data comes ahead of more important labor market data due Friday. The nonfarm payrolls report is widely seen as the most important data in helping determine whether the U.S. Federal Reserve will cut interest rates by a quarter to half a percentage point later this month.
Bank of America said the most likely outcome was a quarter-percentage point rate cut, but “a very weak August jobs report would change that, confirming recession fears.”
“History shows that the Fed will respond aggressively even if inflation is moderately above target,” BofA said.
The U.S. selloff followed a weak day in European markets. Europe's Stoxx 600 index fell 1 percent, further retreating from Friday's all-time high, while London's FTSE 100 fell 0.8 percent.
Brent crude oil, the world's benchmark for oil, reached its lowest level year, falling 5 percent to $73.67 a barrel, while West Texas Intermediate crude, the U.S. benchmark, fell 4.5 percent to $70.25.
The fall came amid speculation that a deal ending a dispute between Libya's political factions would help restore production in the region.
Sentiment was further dampened by recent “weak purchasing managers' index data from China”, a major crude importer, according to broker Fearnley Securities.
Additional reporting by Michael Acton in San Francisco and Arjun Nel Alim in Hong Kong