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US Stock Market Overview – Stocks Drop Sharply Follow Weak ISM Manufacturing Report

Schwab cuts commissions which weighed on financials
David Becker
Digital Stock exchange panel

US stocks initially traded higher but were hit hard following the ISM manufacturing report which showed that US manufacturing had moved into contraction territory for the second consecutive month. Manufacturing was driven down by weaker than expected exports, which have been hampered by trade tariffs. The news immediately hit stocks hard, driving down the materials and industrials.

US yields moved lower and the dollar lost ground. All sectors in the S&P 500 index were lower, driven down by financials and energy. Utilities were the best performing sector. Financials traded under pressure following news that Charles Schwab said that it is ending commissions for online trading in US stocks, exchange-traded funds and options.

Manufacturing in the US is Weaker than Expected

US Manufacturing which makes up approximately 11% of total US GDP fell more than expected according to a survey produced by the Institute of Supply Management. The ISM manufacturing purchasing managers’ index declined to 47.8 in September, the lowest since June 2009, marking the second consecutive month of contraction. According to the Institute of Supply Management figures below 50, indicate a contraction.

The new export orders index was only 41, the lowest level since March 2009, down from the August reading of 43.3, according to the ISM. Exports were the key catalyst and with no agreement between the US and China on the horizon, manufacturing is likely to continue to contract. The ISM employment gauge for the sector showed the lowest reading since January 2016, primarily driven by a lack of demand. New orders also contracted last month, according to the ISM.

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Schwab Announces Drop in Commissions

Charles Schwab reported on Wednesday that it is ending commissions for online trading in US stocks, exchange-traded funds and options. Shares of Schwab fell more than 10% which weighed on many of the online brokers. The broker said commission fees make up 3% to 4% of net revenue each quarter. Rival brokerage firm TD Ameritrade plummeted more than 25% for its worst day in 20 years. E-Trade shares dropped sharply falling more than 16%. Starting on October 7, Schwab, will be slashing its trading commission cost for US stocks, ETFs and options from the previous $4.95 to zero. Trading options will continue to cost 65 cents per contract.

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