Stocks plunge as manufacturing slumps

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 percent, to 2,940.25 for its sharpest loss since August. The Dow Jones Industrial Average fell 343.79, or 1.3 percent, to 26,573.04, and the Nasdaq composite dropped 90.65, or 1.1 percent, 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 percent, to 1,493.43.

In the bond market, the yield on the 10-year Treasury dropped to 1.63 percent from 1.74 percent 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 disappointing data is only fanning long-standing fears of slowing global growth,” said Alec Young, managing director of Global Markets Research at FTSE Russell.

Following the weak manufacturing report, investors ratcheted up expectations for the Federal Reserve to come to the economy’s aid. They increasingly believe the Fed will cut interest rates by half a percentage point at its meeting later this month, rather than the quarter point they were forecasting a day earlier.

The Fed and other central banks around the world have been aggressive in keeping rates low to shield against the effects of the trade war and slowing global economic growth. The Fed lowered short-term rates twice this summer, down to a range of 1.75 percent to 2 percent, the first cuts since the financial crisis was toppling economies around the world in 2008.

Financial stocks were among the market’s biggest losers Tuesday, hurt by the drop in interest rates, which can crimp the profits banks made from lending.

Benchmark crude oil fell 45 cents to settle at $53.62 a barrel. Brent crude oil, the international standard, fell 36 cents to close at $58.89 a barrel. Wholesale gasoline was unchanged at $1.57 per gallon. Natural gas fell 5 cents to $2.28 per 1,000 cubic feet.