The growth scare’s back.

Wall Street stumbled (hard) out of the gate at the beginning of what, historically, is the worst month of the year for US equities.

The proximate cause of investor consternation was another lackluster ISM manufacturing update. The poor read on US factory activity stoked hard landing fears anew ahead of Friday’s “make or break” jobs report. (Note the scare quotes. They’re all “make or break” if you ask the financial media.)

The S&P trundled into the US afternoon on track for its worst day since last month’s fleeting vol shock. The VIX shot up, albeit nothing like the anomalous, black swan surge witnessed prior to the cash open on August 5.

Recall that the US benchmark went a very (very) long time without a 2% downdraft. If you round up (or “down,” I guess), we’ve had four of them in just a little over a month.

It’d be a mistake to read too much into the post-Labor Day price action, but the rout did testify to the notion that bad news is in fact just bad news these days. Nobody, apparently, is hoping for bad data on the excuse that the worse the economy looks, the higher the odds the Fed goes big this month with a 50bps first cut, and thereby the easier it is to justify nosebleed equity valuations.

I’d be remiss not to mention crude, which was bludgeoned as growth jitters (exacerbated by a weak read on Chinese factory activity over the weekend) collided with reports that sidelined Libyan supply could be restored imminently, while OPEC+ is sticking to planned output hikes for October.

WTI’s now negative for 2024. (It’s during times like these you’re glad you didn’t replace all your bonds with commodities.)

Speaking of bonds, they were naturally (and modestly, considering the severity of the stock swoon) bid to start the week, “a function of the pullback in the energy complex, a decline in breakevens and the market’s collective sense that risk assets appear vulnerable,” as BMO’s US rates team put it.

To reiterate: Rates, FX and market internals were never on board with the quick snapback for US equity benchmarks last month. “[E]quity indices’ insouciance stands in stark contrast to foreign exchange and government bond markets, which have not strayed very far from their August 5 crisis extremes,” SocGen’s Albert Edwards remarked.

Relatedly — and as Morgan Stanley’s Mike Wilson was keen to note in his latest — the spate of better macro data which helped allay last month’s growth concerns did little to change the story as told by widely-followed macro “surprise” indexes.

Bloomberg’s gauge for the US “has yet to convincingly reverse its downturn that began in April,” Wilson wrote, adding that cyclicals “remain in a downtrend” versus defensives.

Tellingly, Wilson went on, the stock-bond return correlation is still negative — i.e., the equity-yield correlation is positive.

That’s the surest sign that “good is good and bad is bad,” he said.