US stock prices fall at the beginning of September, investors hold back on chips

(Reuters) – Wall Street’s major indexes fell on Tuesday, with the S&P 500 losing more than 2% and the Nasdaq Composite over 3%, as investors tempered their optimism about artificial intelligence amid a broader market sell-off that accelerated after weak economic data. The benchmark S&P 500, Nasdaq and Dow indexes posted their biggest daily losses since early August.

Chip company stocks were hit hard, with AI heavyweight Nvidia plunging nearly 10% and Wall Street’s PHLX chip index losing 8%.

Investors also expressed concerns about the time of year, as September is widely considered one of the worst months for equity market performance.

CAROL SCHLEIF, CHIEF INVESTMENT OFFICER, BMO FAMILY OFFICE IN MINNEAPOLIS, MINNESOTA:

“September and October are notoriously volatile months for markets, especially in years with presidential elections. This year, investors seem even more concerned given the wide swings in the polls and rapidly changing potential outcomes.”

“It’s not atypical for trading to begin after Labor Day with a push in the opposite direction from the previous summer months, when people went back to the office and prepared for the end-of-year rush.”

TODD ​​SOHN, ETF STRATEGIST, STRATEGAS LLC, NEW YORK:

“So much money has flowed into technology and semiconductors over the past 12 months that trading has gotten completely out of control. Since the Fed stopped raising interest rates a year ago, more than $30 billion has flowed into U.S. technology ETFs; all other sector ETFs lost $10 billion over the same period. Tactical allocations are flowing into these sector ETFs, and imbalances like this can persist for a while, but eventually trading runs out of steam.

“Then there’s the earnings – it’s also hard to keep beating those high expectations. Plus, we now have to release Broadcom’s results on Thursday. And if you put ten people in a room and asked them why this is happening, at least one would point to the election and the possibility of a new administration doing something with tariffs that would affect chips.

“And finally, although it wouldn’t be at the top of my list, there’s the calendar. People may have woken up this morning and realized it’s September, which is historically not a good month for stocks. Add to that the fact that the biggest drop in the S&P 500 so far this year is about 8%, and we would normally see something around 14%. People are nervous.”

STEVE SOSNICK, MARKET STRATEGIST, INTERACTIVE BROKERS, GREENWICH, CT.

“There’s a bit of a hangover from Nvidia earnings today. Last week’s earnings were good, beating expectations. But the magnitude of the beats is shrinking quarter by quarter, and that’s not lost on investors. The stock had rallied before the earnings release — huge investments had gone into it — and so it wasn’t enough to be good, it had to be great. And Friday’s rally came in remarkably light volume ahead of a long weekend that happened to coincide with the end of the month, so the typical premium that happens at the end of a calendar month met no resistance.

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“This week is different, and so you’ve had a bad day. There are concerns about the direction of employment numbers and seasonality. That’s why the VIX is higher. I don’t think the ISM number showing a weaker manufacturing sector but higher prices was helpful at all. And there you have it: gravity.”

DENNIS DICK, TRADER AT TRIPLE D TRADING:

“If you look at Friday’s performance, everything was up, but Nvidia was lagging. So you could see that the relative strength after the earnings release was weak. It hasn’t been good since then.”

“September is a very weak month seasonally, so I think people are nervous. They’re just using it as an excuse to take profits, and the most likely candidates to win are the semifinalists because they’ve been the strongest.”

STEPHEN MASSOCCA, SENIOR VICE PRESIDENT, WEDBUSH SECURITIES, SAN FRANCISCO:

“We’ve climbed back to a new high. There was absolutely no news over the weekend that would have meant anything to anyone. But now we’re down 600 points.”

“They’re expensive. These are not cheap stocks. I mean, wow, I don’t know what Nvidia had to do this quarter… It was a pretty damn good quarter, except for a few minor issues, but that just goes to show that these things are just very expensive.

“It also becomes a bit of a self-fulfilling prophecy because so much money is now going into ETFs and so much money is going into S&P and target funds and all that. It just gets spread out across the market and it gets spread out across the market weighted by market cap, so it kind of becomes a self-fulfilling prophecy. If you’re one of the top market cap names in the S&P 500 and all that money is going into S&P 500 ETFs, how can that not help you? And I think that’s part of it, and that’s part of why you get these stretched valuations.”

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, BROOKFIELD, WI

“People are worried and thinking about all sorts of macroeconomic issues. Has the Fed dropped the ball? There’s a fear that it’s tripping over its own head on the timing and pace of rate cuts rather than getting down the right path. Will the jobs report increase the likelihood of a recession? The biggest concern here is the possibility that investors will sell their most surging stocks in the face of a slowdown.”

SCOTT WREN, SENIOR GLOBAL MARKET STRATEGIST AT WELLS FARGO INVESTMENT INSTITUTE

“We entered with falling futures, but when that ISM number came out, that was the trigger for this decline.”

“The market is concerned about how drastic the slowdown will be. The technology sector is still up strongly for the year despite today’s drop, and those things have been moving a lot. Those stocks led the chart up, and on days of losses they will lead the chart down. If you look at about 2/10 inversions, the last 8 recessions the curve was positive before the recession hit, and we’re just a few basis points away from that. The market is thinking about that too.”

MICHAEL GREEN, PORTFOLIO MANAGER, SIMPLIFY, SAN FRANCISCO BAY AREA

“People have too much exposure to Nvidia and a lot of other names and are trying to reduce that exposure. There’s just the potential for these things to sell off pretty heavily.”

“I also think there is some de-risking related to the election, as election season is officially starting now that people are back from Labor Day and everyone is off the beach. Everyone has looked at their portfolio and said we want to take less risk given the political uncertainty of a close election. The PMI report was an excuse for that.”

CALLIE COX, CHIEF MARKET STRATEGIST, RITHOLTZ WEALTH MANAGEMENT, NEW YORK

“Stock prices are starting to fall on a sour note, but it’s hard to say why people are selling today. The technology sector is dragging the index down, with Nvidia accounting for about a third of the S&P 500’s losses. A manufacturing report came out this morning that suggested demand for goods is slowing. But it wasn’t shockingly bad data, and news of slowing demand isn’t exactly surprising.

“I would attribute the decline in part to seasonality. September is typically a difficult month of the year for the stock market – and the S&P 500 has fallen on the Tuesday after Labor Day every year since 2016. People may just be catching up on what they missed during the dog days of summer.

“Believe in this bull market, but guard against hasty decisions in a potentially turbulent downturn. And don’t get distracted by short-term market fluctuations. Since 1950, 60% of market sell-offs have failed to reach a correction zone, and 26% ended before the dreaded bear market level.”

(Reporting by Suzanne McGee, Noel Randewich, Chuck Mikolajczak, Chibuike Oguh, David Randall, Laura Matthews and Carolina Mandl; compiled by Megan Davies and Ira Iosebashvili)