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The Stock Market Is Falling Because Inflation and Growth Concerns Won’t Go Away

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Investors are awaiting key jobs data on Friday.

Angela Weiss/AFP via Getty Images

The U.S. stock market was mostly lower on Tuesday amid signs of slower growth in China and concerns about inflation in Europe as investors look ahead to Friday’s U.S. payrolls report.

By midmorning, the Dow Jones Industrial Average was little changed, while the S&P 500 and the Nasdaq Composite declined 0.1% and 0.3%, respectively.

For the month of August, the S&P 500, Dow and Nasdaq are on pace to have risen 2.8%, 1.1% and 3.7%, respectively. 

Analysts noted investor attention is on U.S. jobs data coming at the end of the week. The August jobs report on Friday will give markets their next major chance to estimate when and how the Federal Reserve will begin slowing pandemic-era measures to add liquidity to markets.

While markets want to see a solid report, an employment report that is too strong could spur concern that the Fed will taper—or lower—its monthly bond buying rather quickly, thus reducing economic support. “Taper timing is now up to the economic data we see in the coming weeks,” writes Lauren Goodwin, economist and portfolio strategist at New York Life Investments. 

In Asia, markets spent much of the day in the red after weak manufacturing and nonmanufacturing purchasing managers index (PMI) data from China caused stocks to tremble. Manufacturing PMI slightly underperformed but remained in expansionary mode at 50.1, but nonmanufacturing PMI surprised in a tumble from 53.3 to 47.5 this month.

“Covid-19 lockdowns in various cities and critical ports sapped domestic consumption, and consumers postponed travel as a result,” said Jeffrey Halley, an analyst at broker OANDA.

“However, it is likely that the ongoing government clampdowns in multiple sectors, notably student tuition and technology, are impacting both employment concerns in those affected and broader consumer confidence as fears of wider interventions rise,” Halley added.

But Asian stocks managed to eke out gains, with Tokyo’s Nikkei 225 rising 1.1% as the Hong Kong Hang Seng Index ticked up 1.3% and the Shanghai Composite inched 0.5% higher.

In Europe, the consumer-price index rose 3% in July year over year, the highest in 10 years. That was enough to get the ECB’s inflation hawks squawking, with Governing Council member Robert Holzmann saying its time to move away from stimulus and start thinking about focusing on inflation,

In Europe, the FTSE 100 was down 0.6%, while the pan-European Stoxx 600 fell 0.6%. Paris’ CAC 40 was off 0.3% and Frankfurt’s DAX down 0.4%.

The price of aluminum traded on the London Metal Exchange hit its highest point since May 2011, with three-month aluminum touching $2,726.50 a metric ton before settling around $2,650. The surge—with the industrial metal on track for a seventh straight month of gains—comes amid output cuts in China due to tight controls on power usage.

It’s a light day on the corporate earnings front, with NetEase, CrowdStrike, and H&R Block reporting results.

Robinhood Markets  (ticker: HOOD) stock fell 2.3% after Securities and Exchange Commission chairman Gary Gensler told Barron’s a full ban of payment for order flow is a possibility. 

Zoom Video Communications  (ZM) stock fell 16.4% after reporting a profit of $1.36 a share, beating estimates of $1.16 a share, on sales of $1 billion, above expectations for $991 million.  Five9  (FIVN), which is being acquired by Zoom, fell 15.2%.

GoodRx Holdings  (GDRX) stock rose 0.9% after getting upgraded to Overweight from Equal Weight at Barclays. 

Textron  (TXT) stock gained 1.4% after getting upgraded to Outperform from Market Perform at Cowen. 

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com