Stocks sink as U.S. manufacturing shrinks in reflection of trade war

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 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 after 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.

In the bond market, the yield on the 10-year Treasury dropped to 1.63% from 1.74% before the report’s release, 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.

After 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 of a point they were forecasting a day earlier.The Fed lowered short-term rates twice this summer, down to a range of 1.75% to 2%, 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 make from lending.

Charles Schwab upended the industry when it said it would eliminate mobile and web trading commissions for stocks, exchange-traded funds and options listed in the United States and Canada. It’s the latest move in an industrywide pricing war that has dramatically cut the cost of investing.

Schwab fell 9.7% after the announcement, but rivals sank even more. TD Ameritrade lost 25.8%, and ETrade Financial dropped 16.4% for the biggest loss in the S&P 500.

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.

Gold rose $16.30 to $1,482.00 per ounce and silver rose 30 cents to $17.20 per ounce.

The dollar fell to 107.73 Japanese yen from 108.07 yen on Monday. The euro strengthened to $1.0936 from $1.0902.