The Dow Jones Industrial Average fell more than 600 points on Thursday as the biggest drop in more than a decade in the ISM U.S. manufacturing index added to nerves over slowing global growth sparked by a revenue warning from Apple.
At 10:38 a.m. EDT the Dow Jones Industrial Average was down 631.40 points, or 2.70 per cent, at 22,714.84, the S&P 500 was down 57.58 points, or 2.29 per cent, at 2,452.45 and the Nasdaq Composite was down 178.66 points, or 2.68 per cent, at 6,487.28.
Data showed Thursday that a gauge of U.S. manufacturing plunged last month by the most since October 2008, a fresh sign of deceleration in the economy amid global strains across the sector.
The Institute for Supply Management index dropped to a two-year low of 54.1, missing all estimates in Bloomberg’s survey. All five main components declined, led by new orders slumping the most in almost five years and the steepest slide for production since early 2012. Employment, delivery and inventory gauges fell, and ISM said just 11 of 18 industries reported reported growth in December, the fewest in two years.
The data followed Apple’s warning on revenue that rocked financial markets. Investors shunned equities and sought safety in bonds and less risky assets amid renewed concerns about slowing global economic growth and damage from the Sino-U.S. trade war.
Technology stocks led a sell-off across Asian, European and U.S. shares after Apple cut its revenue forecast, its first downgrade in nearly 12 years, blaming weaker iPhone sales in China.
The news also jolted currency markets and German government bond yields held close to their lowest in over two years.
“For the moment, investors have reacted by going into non-risky assets,” said Philippe Waechter, chief economist at Ostrum Asset Management, in Paris.
“No one wants to take any risk because none of the uncertainties we are facing have been lifted, whether it’s Brexit, this trade war, or growth. Investors are putting their heads in the sand and waiting.”
Apple’s U.S. and Frankfurt-listed shares tumbled almost 10 per cent.
The alert renewed worries about corporate earnings just weeks before results season kicks off in the United States and stirred worries that it signals broader malaise in the global economy, said Peter Rutter, head of global equities at Royal London Asset Management.
“The equity market in the past three or four months has begun to bake in some form of economic slowdown and a reduction in corporate earnings expectations and there’s a wrestling match between waiting for that to come through,” he said.
Analysts on average expect S&P 500 companies to increase their earnings per share by nearly 7 per cent this year, down from a forecast of 10 per cent at the start of October and far below their expectations of 24 per cent EPS growth for 2018, according to Refinitiv’s IBES.
The news sparked a ‘flash crash’ in holiday-thinned currency markets as growing concerns about the health of the global economy, particularly in China, sent investors scurrying into the safe-haven of the Japanese yen, which was poised for its biggest daily rise in 20 months.
Apple’s warning came after data earlier this week showed a deceleration in factory activity in China and the euro zone, indicating the trade dispute between the United States and China was taking a toll on global manufacturing.
Chipmakers who supply parts to Apple were the worst hit, sending technology stocks to their lowest since February 2017.
Overnight, shares in China and Hong Kong see-sawed between gains and losses as investors braced for Beijing to roll out fresh support measures for the cooling Chinese economy.
Currency markets saw a wild spike in volatility in early Asian trade, with the yen moving sharply higher against the U.S. dollar, breaking key technical levels and triggering stop-loss sales of U.S. and Australian dollars.
The dollar was last 1 per cent weaker against the yen at 107.77, having earlier fallen as low as 104.96, its lowest level since March 2018. The Australian dollar at one point hit levels against the Japanese yen not seen since 2011.
The euro was up 0.3 per cent, buying US$1.1375, and the dollar index, which tracks the U.S. currency against a basket of major rivals, was 0.3 per cent weaker at 96.52.
Germany’s 10-year bond yield was most recently at 0.18 per cent, after hitting a session low of 0.148 per cent.
U.S. crude oil rose 1.5 per cent to US$47.25 a barrel, and Brent crude was up 2.1 per cent at US$56.07. Gold was higher as the dollar weakened, with spot gold trading up 0.3 per cent at US$1,289.4 per ounce.
© Thomson Reuters 2019