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STORY: U.S. stocks slumped on Tuesday to kick off one of the market's historically worst months.

The Dow dropped one-point-five percent, the S&P 500 fell more than two percent and the tech-heavy Nasdaq plummeted three-and-a-quarter percent.

Market sentiment fell as Institute for Supply Management data on Tuesday showed U.S. manufacturing remained subdued despite a modest improvement in August.

"It looks like a big down day today..."

Melissa Brown is managing director of investment decision research at Simcorp.

"You do have the ISM (Institute for Supply Management) survey that came out a little bit disappointing and may be suggesting that we are closer to that soft landing or being in a recession than we were. And we all know that the Fed (Federal Reserve) is so data dependent, so they're probably going to be looking at this particular piece of data."

The central bank will also be looking closely at Friday's non-farm payrolls data for August.

Odds of a 25-basis point interest rate cut by the Fed later this month are more than 60%, the CME Group's FedWatch Tool showed. Investors see a less than 40% chance of a 50-basis point cut.

The so-called Magnificent Seven megacap technology stocks, which have led this year's rally, plunged on Tuesday.

Shares of Nvidia dropped 9.5%, as investors softened their optimism about AI.

After the close, Bloomberg News reported that Nvidia received a subpoena from the U.S. Department of Justice as the regulator seeks evidence that the AI-heavyweight violated antitrust laws.

Tesla fell more than 1.5% after Reuters reported that the electric vehicle maker plans to produce a six-seat variant of its Model Y car in China from late 2025.

Outside of Big Tech, Boeing dropped more than 7% after Wells Fargo downgraded the planemaker's shares to "underweight" from "equal weight."