Stocks kicked off August sharply lower after a round of economic data on Thursday spurred concerns the economy may be slowing faster than anticipated while the Federal Reserve maintains a restrictive monetary policy.
The Dow plunged more than 700 points, before paring losses to close at 40,347.97, down 494 points, or 1.2%. The S&P 500 lost 1.4%, and the Nasdaq slid 2.3%, or more than 400 points.
Equities initially opened higher, buoyed in part by gains in Meta Platforms after its quarterly results topped expectations and the Facebook parent issued an upbeat outlook for the third quarter. Its shares closed up 4.8% at $497.74.
Stocks turned lower, however, after data showed a measure of manufacturing activity from the Institute for Supply Management (ISM) dropped to an eight-month low in July at 46.8, signifying contraction.
“The ISM is really what started the ball rolling today and then selling causes more selling,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.
“We’re still in earnings season and there will be positive surprises that will probably drive the market higher and there may be negative surprises as well… but if you get something negative like ISM, it causes profit-taking.”
Other data showed the number of Americans filing new applications for unemployment benefits increased to an 11-month high last week, suggesting some softening in the labor market, although seasonal factors also played a role.
Both the S&P 500 and Nasdaq registered their biggest daily percentage gains since February in the prior session, boosted by a rally in chip shares after the Fed kept rates steady, as expected.
Defensive sectors such as utilities and real estate led gains, as geopolitical concerns boosted the dollar and pulled Treasury yields lower.
Declines in megacap names such as Apple and Amazon ahead of their quarterly results weighed heavily on the tech and consumer discretionary indexes, which were among the worst performing of the 11 major S&P sectors.
The small-cap Russell 2000 slumped 3%, its biggest daily percentage drop since Feb 13. Small caps have been among the first stocks to benefit as investors rotate out of more expensive stocks.
Nvidia slumped 6.7% in a broader chip stocks rout sparked by Arm Holdings’ conservative revenue forecast and Qualcomm flagging a revenue hit from the impact of trade curbs, dragging those stocks down 16% and 9.3%, respectively.
Moderna slumped 21% after cutting its 2024 sales forecast for COVID-19 and respiratory syncytial virus vaccines by up to 25%.
Eli Lilly rose 3.5% after trial results showed weight-loss drug Zepbound reduces the risk of hospitalization, death and other outcomes for obese adults with a common type of heart failure.
