Technology companies drove a broad slide in U.S. stocks Tuesday as disappointing economic data and the latest escalation in the U.S.-China trade war put investors in a selling mood.
The Dow Jones industrial average slumped 1.1% as the market gave back some of its gains from last week. The losses ended a three-day winning streak for the Standard & Poor’s 500 index.
The sell-off got going as investors took in the state of the U.S.-China trade war: New tariffs had taken effect over the long weekend. New economic data showing that U.S. factory activity shrank in August for the first time in three years helped drive the selling.
“While we’ve known that manufacturing was slowing and in a slump, this was worse than expected, which is rekindling fears of recession,” said Kate Warne, chief investment strategist at Edward Jones. “While we don’t think recession is on the horizon, certainly it’s one more sign of slower economic growth.”
Investors fled to safer holdings, including utilities stocks, bonds and gold. Oil prices fell.
The S&P 500 fell 20.19 points, or 0.7%, to 2,906.27. The Dow declined 285.26 points, or 1.1%, to 26,118.02.
The Nasdaq slid 88.72 points, or 1.1%, to 7,874.16. Smaller-company stocks also fell sharply, sending the Russell 2000 index down 22.56 points, or 1.5%, to 1,472.28.
The worsening trade situation between the world’s two largest economies dragged the benchmark S&P 500 down in August, its second monthly loss of the year, and dented investors’ confidence in global economic growth.
On Sunday, the United States started charging a 15% tariff on about $112 billion of Chinese products. China responded by charging tariffs of 10% and 5% on a list of U.S. goods.
The escalation had been expected since early August. Still, stocks fell as investors turned pessimistic that any resolution will be forthcoming in the near future, even as negotiators from the United States and China are supposed to meet in September to continue trade talks.
“It appears that the two sides aren’t even able to agree on a date, and that’s making investors feel more skeptical that even if there’s a meeting there won’t be any progress,” Warne said.
Technology companies accounted for much of Tuesday’s decline. The sector is particularly sensitive to swings in U.S.-China trade relations, and tariffs have the potential to drive up costs for makers of gadgets and chips. Apple, which relies on China as a key part of its supply chain, fell 1.5%, while chipmakers Nvidia dropped 2% and Qualcomm slid 3.4%.
Industrial stocks were among the biggest decliners. Caterpillar, which is seen as an industry bellwether when it comes to the effect of trade, fell 1.7%.
Oil prices fell, dragging down energy stocks. Chevron shares slid 1.2%.
Benchmark crude oil fell $1.16 to $53.94 a barrel. Brent crude oil, the international standard, fell 40 cents to $58.26 a barrel.
Utilities stocks held up well. So did makers of consumer products such as Procter & Gamble, which rose 0.9%.
The price of gold rose $26.80 to $1,545.90 an ounce. Gold producer Newmont Goldcorp’s stock rose 1.3%.
Bond prices rose, sending yields down. The yield on the 10-year Treasury fell to 1.47% from Friday’s 1.50%. The lower bond yields weighed on banks. Citigroup shares fell 1.4%.
The surge in demand for U.S. government bonds came as new U.S. manufacturing data stoked fears of an economic slowdown.
The Institute for Supply Management, an association of purchasing managers, said Tuesday that its manufacturing index slid to 49.1 last month from 51.2 in July. Any reading below 50 signals a contraction. August’s reading was the lowest for the index since January 2016.
“The trend is not in the right direction, and it was worse than expected,” Warne said.
A global softening in demand, worsened by the U.S.-China trade war, appears to be hurting U.S. manufacturers. More than half of the public comments from companies surveyed by ISM pointed to economic uncertainty as a drag on their businesses.
Businesses are increasingly wary of investing and expanding because of uncertainty surrounding the trade war.
Investors have been worried that the trade war and a slowing global economy could tip the United States into a recession. The bond market has been reflecting these fears, with long-term bond yields falling below short-term ones — a so-called inversion in the U.S. yield curve that has portended previous recessions.
The yield on the 10-year Treasury has been hovering near or below that of the 2-year Treasury yield, which on Tuesday dropped to 1.46% from Friday’s 1.49%.
Conn’s jumped 18.3% after the furniture and electronics retailer posted second-quarter profit that blew past Wall Street’s forecasts. The company’s revenue also beat analyst expectations.
Boeing fell 2.7% after United Airlines and American Airlines took steps to delay until December the expected return of Boeing 737 Max jets.
Wholesale gasoline fell 6 cents to $1.47 a gallon. Heating oil fell 3 cents to $1.80 a gallon. Natural gas rose 7 cents to $2.36 per 1,000 cubic feet.
European stocks declined amid worries that Britain faces a potentially chaotic exit from the European Union. Prime Minister Boris Johnson’s office said he would call an early election if his opponents pass legislation that would block his plans to leave the EU by an Oct. 31 deadline.