Stocks Set for Another Bad Day as Economic and AI Worries Persist

The three main indexes had their worst day in more than a month on Tuesday, dragged down by weak ISM manufacturing data, which reignited fears that the U.S. economy could be headed for a recession.

AI bellwether Nvidia led the way, tumbling 9.5% amid worries that the ChatGPT-fueled investing frenzy that’s powered chip stocks higher over the past two years might soon fizzle out.

Asian equities weren’t spared from the selloff. Tokyo’s Nikkei 225 index closed 4.2% lower on Wednesday, dragged down by semiconductor-related stocks, while South Korea’s Kospi fell 3.2% and Taiwan’s Taiex dropped 4.5%.

On Wednesday, job openings data from the Bureau of Labor Statistics and discount store Dollar Tree’s quarterly earnings report could offer more clues about the state of the economy.

The pain from U.S. stocks’ start-of-September slump spread to Asia on Wednesday, with Japan’s benchmark Nikkei 225 index closing 4.2% lower.

Worries about slowing demand for artificial intelligence fueled the selloff, with a cluster of semiconductor-linked stocks including Tokyo Electron, Lasertec, and Rohm all tumbling.

But AI wasn’t the only issue on investors’ minds. In remarks given to a government panel, Bank of Japan governor Kazuo Ueda said once again that policymakers are prepared to continue raising interest rates, powering the yen higher against the dollar.

The currency’s resurgence could reignite fears about the unwinding of the carry trade, in which investors borrow yen on the cheap and use it to invest in higher-yielding assets, such as U.S. tech stocks.

In July, a surprise BoJ rate hike caused the yen to spike and sparked a market rout that saw the Nikkei 225 plummet 12%, for its worst day in nearly 40 years. Big-name U.S. stocks such as Nvidia also suffered as the surging value of the yen forced investors to sell their positions to lock in profits.

The dollar was falling ahead of U.S. jobs data that could alter interest-rate cut expectations for the Federal Reserve.

The jobs opening and turnover survey will be released at 9 a.m. Eastern Time, followed by ADP private payrolls data on Thursday and the nonfarm payrolls report on Friday.

The dollar could see “a bit of a back and forth” on Wednesday and Thursday but “hardly anyone will stick one’s neck out and position significantly for one side or the other, since Friday’s report will be decisive,” Commerzbank currency analyst Antje Praefcke said in a note.

August payrolls data are particularly important after July’s report sparked speculation for more aggressive rate cuts, she said.

The DXY dollar index fell 0.2% to 101.628.

It looks like there’s another disappointing September trading session in the cards for investors, with the economy and tumbling artificial intelligence stock prices serving up a twin threat to markets.

Dow Jones Industrial Average futures were down 40 points, or 0.2%. Futures for the benchmark S&P 500 slid 0.3%, while contracts tied to the tech-heavy Nasdaq 100 dropped 0.6%.

The three gauges had their worst day in more than a month on Tuesday, dragged down by weak ISM manufacturing data, which reignited fears that the U.S. economy could be headed for a recession. AI bellwether Nvidia led the way, tumbling 9.5% amid worries that the ChatGPT-fueled investing frenzy that’s powered chip stocks higher over the past two years might soon fizzle out.

Asian equities weren’t spared from the selloff. Tokyo’s Nikkei 225 index closed 4.2% lower on Wednesday, dragged down by semiconductor-related stocks, while South Korea’s Kospi fell 3.2% and Taiwan’s Taiex dropped 4.5%.

The market had a similarly hellish day at the start of last month after weaker-than-expected U.S. jobs data and surprise Bank of Japan interest-rate hikes led to a broad and deep selloff, although the main three U.S. indexes have pared back their losses since then. But September tends to be a tough time for stocks, with traders typically using the start of fall as a time for reassessing their portfolios.

“Deep concerns rippled out from Wall Street over the risks of an American recession” after Tuesday’s soft manufacturing data, Hargreaves Lansdown’s head of money and markets Susannah Streeter said in a morning research note.

“Although the last big wobble in late July and early August was followed by a rebound, with September historically the worst month for stock performance, it’s ‘hold on to your hats’ time, with more volatility expected,” she added. “This fresh wave of uncertainty is unlikely to retreat before the monthly jobs’ numbers on Friday.”

On Wednesday, job openings data from the Bureau of Labor Statistics and discount store Dollar Tree’s quarterly earnings report could offer more clues about the state of the economy, with investors fretting about a potential slowdown after about two years of high interest rates.

Oil prices were down again, with concerns about weakening demand from China and a production increase from the OPEC+ cartel dragging on crude. The West Texas Intermediate benchmark fell 1.3% to $69.41 a barrel, while Brent prices were down 1.2% to $72.88 a barrel.

Bond yields were down over the past 24 hours. The yield on the 10-year U.S. Treasury note was 3.814%, while 2-year notes were yielding 3.849%.