Asia stocks fall further on US recession worries
NEW YORK (Reuters) - A wake-up call from the US heartland has spooked Wall Street by raising fears of a recession that will push equities into a correction.
After Tuesday’s dire picture on manufacturing from the Institute for Supply Management (ISM), which rattled the market, investors await Thursday’s ISM services report and Friday’s employment report to confirm or quash recession worries.
They will also be looking for evidence on the strength of the consumer, which has been a cornerstone of the current economic expansion.
“I am more concerned at this point than I have been at any point in the entire year ... The key ingredient is when the business recession impacts the consumer and we get a total recession,” said Phil Blancato, chief executive of Ladenburg Thalmann Asset Management in New York.
The ISM came in at 47.8 on Tuesday, its lowest level in over 10-years as trade tensions weighed on exports.
That tipped the Dow and S&P 500 into their biggest one-day percentage declines since Aug. 23. The S&P 500 is now down 4.6 percent from its record July 26 closing high. A correction is traditionally defined as a 10 percent decline.
“This one is significant. We’re seeing a real contraction in the manufacturing sector,” Blancato said.
Worries the drop in manufacturing was a harbinger of a sharper slowdown in the economy continued on Wednesday, as each of the major indexes closed down more than 1.5 percent. A report on private payrolls showed further slowing and did little to turn sentiment.
Expectations for the ISM services report are for a reading of 55.0, down from the 56.4 registered in August. Friday’s payrolls number is forecast to show job gains of 145,000, up from the 130,000 in August, while the unemployment rate is expected to hold steady at 3.7 percent.
Manufacturing represents a much smaller piece of the economic pie than the services sector. The concern though is that other data points, such as hours worked for the services sector, have indicated the slowdown may be escalating.
“We are of course now watching nonmanufacturing ISM and ultimately, most importantly, the nonfarm payrolls on Friday for the composition of how much of the deterioration we are seeing is only in manufacturing and are there any signs this is spreading to services,” said Torsten Sløk, chief economist at Deutsche Bank Securities in New York.
“The worry we have is the uncertainties associated with all this will continue to argue for having a much more cautious approach as an investor at the moment.”
Aside from the recessionary worries, October is a historically volatile month for stocks, said Ryan Detrick, senior market strategist at LPL Financial in Charlotte, North Carolina.
According to Detrick, no month has had more single days moves of one percent in either direction since 1950 than October. Since 1928, six of the 10 biggest single-day drops have come during the month, while three of the 10 best one-day performances have also occurred in October.