U.S. Stocks Slide as Manufacturing Teeters on the Brink of Recession

The Dow and broader U.S. stock market declined sharply on Tuesday, giving back some of last week’s gains after China and the United Sates proceeded with fresh tariffs on each other’s goods. The trade war has left a devastating mark on the U.S. manufacturing industry, which contracted unexpectedly in August for the first time in three years.

Dow Plunges; S&P 500, Nasdaq Follow

All of Wall Street’s major indexes declined in the first session back after Labor Day. The Dow Jones Industrial Average plunged 285.26 points, or 1.1%, to 26,118.02. The blue-chip index was off by more than 400 points earlier in the day.

The Dow Jones Industrial Average declined sharply on Tuesday, giving back some of last week’s big advance. | Source: Yahoo Finance.

The broad S&P 500 Index of large-cap stocks declined 0.7% to close at 2,906.27. Most sectors registered declines, with industrials leading the pack.

Meanwhile, the technology-focused Nasdaq Composite Index closed down 1.1% at 7,874.16.

Manufacturing Sector Contracts, ISM Confirms

The U.S. manufacturing sector contracted unexpectedly in August, as new orders, production and employment fell.

The Institute for Supply Management’s manufacturing purchasing managers’ index (PMI) fell to 49.1 in August from 51.2 in July on a scale where 50 separates expansion from contraction. It was the first time in three years that ISM’s manufacturing index fell below 50.

“Respondents expressed slightly more concern about U.S.-China trade turbulence, but trade remains the most significant issue, indicated by the strong contraction in new export orders,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in the official press release.

A separate PMI gauge from IHS Markit was revised higher to 50.3. It was originally reported at 49.9.

Trade War Heats Up

On Sunday, the United States and China issued new tariffs on each other’s goods, setting the stage for a prolonged tariff war that could have major implications on global economic growth.

Washington implemented a 15% tariff on roughly $110 billion worth of Chinese imports, while Beijing retaliated with duties of between 5% and 10% on about $75 billion of American goods. The latest escalation follows three months of stalled negotiations after China reportedly walked away from an agreement in May.

President Trump has urged American businesses to look for an alternative to China and bring their production facilities back home. At the same time, he has stated that negotiations are going “very well.”

“We are doing very well in our negotiations with China,” Trump tweeted on Tuesday. “While I am sure they would love to be dealing with a new administration so they could continue their practice of “ripoff USA”($600 B/year),16 months PLUS is a long time to be hemorrhaging jobs and companies on a long-shot….”

China’s commerce ministry said last week that both countries are planning to return to the negotiating table this month.

Featured image courtesy of Shutterstock. Chart via Yahoo Finance.

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi