NEW YORK — U.S. stocks sank to their worst loss in five weeks on Tuesday after a surprisingly limp report on the nation’s manufacturing stirred worries about the economy’s strength.
The report showed that manufacturing weakened in September for the second straight month as President Donald Trump’s trade war with China dragged on confidence and factory activity. It dashed economists’ expectations that August’s contraction had been an aberration, and stocks and bond yields immediately reversed course to drop sharply lower following the report.
The S&P 500 slumped 36.49 points, or 1.2%, to 2,940.25 for its sharpest loss since August. The Dow Jones Industrial Average fell 343.79, or 1.3%, to 26,573.04, and the Nasdaq composite dropped 90.65, or 1.1%, to 7,908.68.
Small-company stocks fell more than the rest of the market. The Russell 2000 index lost 29.94 points, or 2%, to 1,493.43.
In the bond market, the yield on the 10-year Treasury dropped to 1.63% from 1.74% before the report’s release, which is a big move. Three stocks fell for every one that rose on the New York Stock Exchange, and gold climbed as investors sought safer ground.
The market had been gliding gently upward at the day’s start, and the S&P 500 was up as much as 0.5% within the first half hour of trading. But then the report from the Institute for Supply Management hit, showing its manufacturing index was at 47.8 last month, the lowest since 2009. Any reading below 50 indicates a contraction.
Economists had been expecting growth to resume in September, and they had forecast a reading of 50.4, according to FactSet.
Manufacturers say global trade remains the most significant issue, and all the uncertainty caused by the trade war is hurting exporters in particular. Businesses are unsure what the rules of international trade will be, and it’s causing CEOs to pull back on their spending plans. In a separate report, the World Trade Organization said global trade growth will slow to its weakest pace this year since 2009.
“The disappointing data is only fanning long-standing fears of slowing global growth,” said Alec Young, managing director of Global Markets Research at FTSE Russell.
Manufacturing is a relatively small part of the economy, but investors worry about whether it will spill into other areas. That puts an even bigger spotlight on Friday’s jobs report, which economists expect to show an acceleration in hiring.
Household spending has been a pillar for the economy, particularly when manufacturing and business spending are under threat, and a strong job market helps households keep spending. But uncertainty is looming even there.
A report last week showed that consumer spending rose less than economists expected in August. Two reports on consumer confidence last week gave a mixed picture, with one falling below expectations and the other rising above. Last month’s jobs report was also surprisingly weak, but that may have been a one-off, some analysts say.