U.S. Stock ETFs Slip as Weak Factory Data Fuels Recession Fears

U.S. markets and stock ETFs retreated Tuesday after new economic data revealed the manufacturing sector weakened for the first time since 2016 last month, fueling fears of the global economic outlook and the impact of a protracted trade war between the U.S. and China.

On Tuesday, the SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) declined 1.4% and SPDR S&P 500 ETF (NYSEArca: SPY) dropped 0.9%.

The markets weakened on concerns over global economic growth and the prospects of a potential recession around the corner after the Institute for Supply Management’s gauge of U.S. factory activity contracted for the first time since 2016 in August, along with a number of other lackluster manufacturing data from around the world, the Wall Street Journal reports.

“A contraction in the manufacturing sector, which we haven’t seen for a very long time, is important because it has a tendency to be a leading indicator for the rest of the economy including the services sector,” Randy Frederick, vice president of trading and derivatives for Charles Schwab, told Reuters. “The signals (for a recession) have been lining up and this is one of them,” Frederick said, adding that a downturn by late next year is “very realistic.”

A Risk-Off Mood

The risk-off mood also came after China lodged a complaint with the World Trade Organization over U.S. tariffs. On September 1, the U.S. executed its previously promised tariffs on Chinese goods including clothing, tools, and electronics while retaliatory Chinese tariffs on U.S. soybeans, crude oil and pharmaceuticals also took effect.

“It’s going to take more time than what people think,” Arun Daniel, a senior portfolio manager at J O Hambro Capital Management, told the WSJ of the U.S. and China trade conflict. “We expect there will be continued volatility in the market over the next 30 to 60 days.”

Related: U.S. Market ETFs Find Momentum from International Investors 

Trade tensions, though, have diminished over the past week after Beijing and Washington D.C. hinted that they would meet in September for talks, despite the round of new tariffs.

Looking ahead, markets will gain a clearer picture of the economy on fresh economic data points that include the latest U.S. jobs numbers.

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