Weak ISM Manufacturing scares the US Markets. Heavy losses on Tuesday

The indices all ended heavily down on Tuesday following weak manufacturing figures and the concerns of an economic slowdown leading to a recession, NVDA -9.5% led the Mag7 lower. Most indices ended around the low for the day. Current futures pricing suggests further weakness on Wednesday.

The VIX is up 8 points to 23 as we write this, it hit 65 intraday on 5 August, its highest level since Covid in 2020. Tuesday's figures: DJIA -1.55%, S&P 500 -2.12% and Nasdaq -3.26%. On an equal weighted basis (our measure) the overall market was down -2.4%, all market cap bands were down although large cap stocks performed best. Breadth was a poor 18% (vs 12% on 5 August and a high of the mid 80s% at the end of July) and daily volumes of 8.6b (vs the average daily volume over the last year of 7.9b).

One day returns as follows - equal weight basis: Mag7 -3.2% (NVDA -9.5%, GOOGL -3.7%, AAPL -2.7%), large -1.67%, medium -2.33%, small -2.73% and micro -2.43%. On a 1 and 2 week equal weight basis; Mag7 -2.3% and -5.1%, Large caps -1.1% and +0.4%, Medium cap -1.8% and +0.2%, small cap -2.5% and flat and finally Micro cap -3.1% and -0.8%%.

On a weekly basis the market was flipping between favouring large caps to back to small/micro the following week. Our risk monitor remains in favour of the larger cap stocks. This performance differential between large and micro was magnified after the poor nonfarm payroll July figures and the associated wider Market retreat. Much of the adverse differential reversed in the middle of August but as we approach the release of August nonfarm the small and micro cap stocks (higher perceived risk) have started to lag again and differential increased on Tuesday by almost 1% alone.