US Stock Market Overview – Stocks Slide and Volatility Rises as US Manufacturing Contracts

David Becker

US stocks were on the defensive as traders came back from their summer holiday’s ready to sell. The market is pricing in no change in the US-China trade war, after the September 1, 2019 tariffs were initiated. A Chinese news anchor was on the tape on Tuesday telling investors in CNBC that China would need a more conducive trade environment to come back to the table. While Chinese data was slightly better than expected on Sunday, US manufacturing data came in weaker than expected.

The VIX Moved Higher

The VIX volatility index moved higher as US stocks declined. The VIX rallied 4% on Tuesday and is forming a bull flag pattern which is a pause that refreshes higher. The range on the VIX during 2019 has been a high of 26, in January of 2019, and a low of 12 in May and August. The current 200-day moving average on the VIX is 17, below the current 20-level.

Yields Declined and Gold Rallied

US yields tumbled on Tuesday, as traders started to price in additional rate cuts. The dollar whipsawed, initially moving higher but sliding in the wake of the ISM data. Interest rate-sensitive stocks bucked the trend allowing utilities to outperform along with real estate companies.

Gold prices broke out closing near a 6-year high which buoyed the gold mining stocks. Oil prices were on the defensive as traders priced in declining supply. The decline in oil prices weighed on energy shares. Most sectors were lower on Tuesday with Utilities bucking the trend.

ISM Manufacturing Points to Contraction

The US ISM manufacturing Purchasing Managers’ Index fell to 49.1 in August, the lowest reading in more than three years. Levels below 50 point to a contraction. The ISM manufacturing report showed expanding manufacturing for 35-straight months. Production and employment gauges also showed contraction in August for the first time after growth for almost three years. ISM’s new export orders slowed for the second month in a row to their lowest reading since April 2009. Separately, data from IHS Markit also released Monday showed the US manufacturing PMI slowed to 50.3 in August, its lowest level since September 2009.

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