The US stock market experienced a massive sell-off on Wall Street on Thursday, with both the Dow Jones and S&P 500 indices falling more than 1 percentage point, indicating a panic mentality in the market.
And this sell-off is related to two data releases: one is that the indicator measuring manufacturing activity by the Institute for Supply Management (ISM) in the United States continued to decline in July, reaching its lowest level in eight months; Another data is that the number of initial jobless claims in the United States hit an 11 month high last week.
Ingalls& Tim Ghriskey, Senior Portfolio Strategist at Snyder, stated that ISM sparked a heated discussion on Thursday, and the resulting selling behavior is highly contagious. At present, the US stock market is still in the earnings season, and there may be some positive factors driving the market higher, but if negative factors such as ISM occur, it will trigger profit taking.
Specifically, ISM data shows that economic activity in the US manufacturing sector shrank for the fourth consecutive month in July, marking the 20th contraction in the past 21 months. The manufacturing PMI recorded 46.8, a decrease of 1.7 from June, continuing to be below the boom bust line and significantly lower than the market expectation of 48.8.
The new order index also continued to contract, recording 47.4, a decrease of 1.9 from June; The production index was 45.9, a decrease of 2.6 from the previous month; The price index is 52.9, a slight increase of 0.8 compared to June; The employment index fell to 43.4, a decrease of 5.9 from June; The new export order index recorded 49, an improvement of 0.2 from the previous month, but still in a contraction range.
Manufacturing industry dilemma
Timothy R. Fiore, President of the American Society for Supply Management, pointed out that manufacturing activity in the United States has further shrunk, demand is very weak, the industry is also declining, and overall investment is loose.
Fiore emphasized that due to the current federal monetary policy and other issues, businesses are unwilling to invest capital and increase inventory, and production execution rates are still declining, increasing the pressure on profitability for businesses.
He also added that there is a 53% chance that the comprehensive PMI data for July, which measures the overall weakness of the manufacturing industry, will be below 45, which is much worse than the situation in June. It is worth noting that all six major manufacturing industries - machinery, transportation equipment, metal products, food, medical and tobacco products, chemical products, and computer and electronic products - experienced a contraction in July.
The report released by ISM points out that the US economy seems to be slowing down significantly, and if customer demand is difficult to boost, the machinery industry needs to undergo significant changes. The metal products industry experienced negative net income for the first time this year... Some usually stable industries have shown signs of fatigue.
Various data have deepened the market's concerns about the economic recession in the United States. Chris Williamson, Chief Business Economist of S&P Global Market Intelligence, pointed out that there were no signs of recovery in the manufacturing industry in July, and the growth prospects were very bleak. It is expected that some companies' investment slowdown is related to the approaching election, but business confidence in improved output one year from now remains low.
Lorenzo Di Mattia, fund manager of hedge fund Sibilla Global Fund, said that concerns about an economic recession and a more intense election campaign will put the US stock market's rotation trading at risk.