By Ankika Biswas and Shubham Batra
(Reuters) - Wall Street's main indexes reversed course and slumped on Thursday, weighed by megacap tech and chip stocks, while small-caps bore the brunt of selling pressure on renewed fears of a slowdown in the U.S. economy.
Fresh data showed a measure of manufacturing activity dropped to an eight-month low in July, keeping the sector in a contraction and dragging Industrials stocks down 2%. Caterpillar (NYSE:CAT) and Boeing (NYSE:BA) were the biggest weights on the blue-chip Dow.
"The overall market is being influenced by the weak ISM manufacturing report, which tells the market that the economy might actually be in a worse shape than they had expected," said Robert Pavlik, senior portfolio manager at Dakota Wealth.
"And (Federal Reserve Chair) Powell's still on hold with rate cuts, so that's gotten them concerned."
The small-cap Russell 2000 slumped over 3% to a more than one-week low after logging its biggest monthly gain so far in 2024.
Most megacap stocks fell, with Apple (NASDAQ:AAPL) and Amazon.com (NASDAQ:AMZN) down over 1% each ahead of their quarterly results after markets close, while Tesla (NASDAQ:TSLA) slumped 4%.
Nvidia (NASDAQ:NVDA) dropped 3.2% in a broader chip stocks rout sparked by Arm Holdings (NASDAQ:ARM)' conservative revenue forecast and Qualcomm (NASDAQ:QCOM) flagging a revenue hit from the impact of trade curbs, knocking their stocks down 15% and 8%, respectively.
At 12:15 p.m. the Dow fell 449.51 points, or 1.10%, to 40,393.28, the S&P 500 lost 45.39 points, or 0.82%, to 5,476.91, and the Nasdaq Composite lost 222.16 points, or 1.26%, to 17,377.24.
However, Meta Platforms (NASDAQ:META) bucked the trend with a 6.4% jump after its second-quarter revenue beat and upbeat third-quarter sales forecast pointed to the possibility that its artificial intelligence costs would be covered. The S&P 500 Communication Services index also gained 1.3%.
The Facebook-owner's quarterly results were the first among "Magnificent Seven" companies to enthuse investors, allaying concerns around AI spending after dismal earnings from Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) last month.
Markets have been looking for signs that tech behemoths can hold on to their bumper gains after steering Wall Street to record highs this year, on AI euphoria and hopes of early rate cuts.
After Fed chief Jerome Powell offered the stock market a likely pivot to policy easing in September, investors are now trying to gauge if the central bank will be able to ease policy at a pace consistent with achieving the much awaited "soft landing" for the economy.
Earlier in the day, data showed jobless claims rose to an 11-month high, another sign of labor market weakness ahead of Friday's Non-farm Payrolls reading.
Moderna (NASDAQ:MRNA) slumped 20% after cutting its 2024 sales forecast for COVID-19 and respiratory syncytial virus vaccines by up to 25%.
Eli Lilly (NYSE:LLY) rose 3% 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.
Declining issues outnumbered advancers by a 2.13-to-1 ratio on the NYSE, and by a 3.07-to-1 ration on the Nasdaq.
The S&P 500 posted 44 new 52-week highs and five new lows, while the Nasdaq Composite recorded 59 new highs and 113 new lows.