Six Strategists on the Stock Market's Worst Session Since August

(Bloomberg) -- The worst reading on U.S. manufacturing in a decade torpedoed an early rally in equities, sending the Dow Jones Industrial Average on a 484-point peak-to-close swing that saddled investors with the worst drop since mid-August. Steadily worsening output, employment and new orders at factories feeds into recession fears and was cited by UBS researchers as boding poorly for S&P 500 earnings. Here’s what strategists and investors said as the Dow and S&P 500 were falling more than 1.2%.

Max Gokhman, the head of asset allocation for Pacific Life Fund Advisors:

“Falling PMIs bring out a lot of recessionary fears. In reality, we’ve gotten lower, and didn’t have a recession before, like in ’95 and ’03. Looking at the market reaction it’s not surprising that industrials (the sector most impacted by trade tensions) is the hardest hit, down 2.4% vs. SPX down 1.2%. And trade concerns are also one of the principal reasons for the continued drop, despite what the president tweeted this morning.”

Ernie Cecilia, CIO Emeritus at Bryn Mawr Trust Co.:

“There’s a clear bifurcation in how the market looked at the numbers. The market clearly was saying ‘Hey look, we don’t know what’s going on exactly, but it looks like there’s two months of weakness here,’ so the companies or sectors that are more tied to manufacturing sector, more cyclical names, did worse, and names, sectors, companies within the consumer area and tech, health care did a lot better. The market clearly delineated between growthier companies and companies more tied to the business cycle. No question -- at least today.”

Chris Rupkey, chief financial economist at MUFG Union Bank:

“The lights haven’t gone out on the economic outlook yet, but they are certainly growing very dim. It will be a miracle if our economic ship can avoid the economic shoals of a recession because the sharp retreat we are seeing on manufacturing confidence is exactly what a recession looks like. Purchasing managers are telling stock market investors to get out.”

Katie Nixon, chief investment officer at Northern Trust Wealth Management:

“The concern is the contagion effect into the services economy which is the driving force of the U.S. economy. But we cannot take this lightly, and we think the Fed shouldn’t take it lightly, either, seeing the weakening of activity in the U.S. in addition to, frankly, the numbers that came out overnight in Europe. I don’t know that you can get much lower than the German manufacturing PMIs, so global manufacturing is clearly on its back heels and it just supports a global easy central banking backdrop.”

Jim Paulsen, chief investment strategist at Leuthold Group:

“It’s more of a push and pull between one bifurcated sector that’s weak and all the rest that’s coming in pretty good. That’s the push and pull. Had that number turned up this morning, I think we’d be talking about new highs in the market. But it didn’t, so that pulls us down a little bit. But like a lot of bad data, none of it has been able to push this market too low because the great bulk of the data here has been pretty good.”

Francois Trahan, head of U.S. Equity strategy, UBS Securities:

The dip in ISM new orders into contraction “is an important signal because across the decades, the ISM crossing below 50 has been synonymous with S&P 500 earnings growth turning negative. Most importantly, perhaps, is that this has been the point where the equity market moves into what we call the risk-aversion phase of the equity cycle.”

--With assistance from Lu Wang.

To contact the reporters on this story: Vildana Hajric in New York at vhajric1@bloomberg.net;Sarah Ponczek in New York at sponczek2@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Chris Nagi, Richard Richtmyer

©2019 Bloomberg L.P.