Wall Street sinks 2 percent on weak factory data, Apple shock

(Reuters) – Wall Street sank 2 percent on Thursday as weak U.S. factory data and the fallout of a rare sales warning from Apple Inc fanned fears of slowing growth and spurred the latest leg of a selloff that has sent indexes to their lowest since mid 2017.

Apple’s shares (AAPL.O) slumped 9.2 percent after the company slashed its holiday-quarter revenue forecast saying sales in China slowed more than expected, the first major warning with the U.S. earnings season around the corner.

Meanwhile, Institute of Supply Management data showed U.S. manufacturing activity slowed more than expected in December, with the index of national factory activity dropping to 54.1 last month and missing economists’ estimate of 57.9.

That comes after data earlier this week showed a deceleration in factory activity in China and the euro zone, indicating the ongoing U.S.-China trade dispute was taking a toll on global manufacturing.

“We are seeing markets extrapolate Apple’s news throughout several sectors and equate it to a deceleration in the global economy,” said Christopher Anselmo, director at Nasdaq IR Intelligence in New York City.

“A lot of data in the past few days, including U.S. factory activity is pointing to a global economic slowdown. The data is just giving a magnitude of how broad this slowdown is and which regions it is affecting the most.”

Ten of the 11 major S&P sectors fell, led by the technology index’s .SPLRCT 4.16 percent slide. Within tech, chipmakers, which count both Apple and China as major customers, were hit the hardest. The Philadelphia Semiconductor index .SOX slumped 4.36 percent.

The trade-sensitive industrials .SPLRCI dropped 2.75 percent, while materials .SPLRCM fell 2.39 percent and three other sectors were logging declines of roughly 2 percent.

At 11:01 a.m. ET, the Dow Jones Industrial Average .DJI was down 569.72 points, or 2.44 percent, at 22,776.52, the S&P 500 .SPX was down 49.31 points, or 1.96 percent, at 2,460.72 and the Nasdaq Composite .IXIC was down 148.41 points, or 2.23 percent, at 6,517.53.

The grim reading rocked financial markets, sending investors to the relative safety of government Treasuries and bond-proxies stock sectors. Even among them only real estate .SPLRCR gained, while utilities .SPLRCU and consumer staples .SPLRCS nursed slight losses.

While the recent selloff has made stocks cheaper, with the S&P 500’s valuation falling to 14 times expected earnings from 18 times a year earlier, earnings estimates have also been cut sharply.

Analysts on average expect earnings per share at S&P 500 companies to rise nearly 7 percent this year, down from a 10 percent forecast at the start of October and far below their expectations of 24 percent EPS growth for 2018, according to Refinitiv’s IBES.

“As we head towards the earnings season, investors are getting more and more concerned about how the global economic slowdown and the trade war are impacting U.S. companies,” said Anselmo.

Among the few bright spots was Celgene Corp (CELG.O), which surged 25.8 percent after Bristol-Myers Squibb Co (BMY.N) offered to buy the drugmaker for about $74 billion in cash and stock. Bristol-Myers fell 12.5 percent.

FILE PHOTO: A trader works on the floor at the New York Stock Exchange (NYSE) in New York City, New York, U.S., January 2, 2019. REUTERS/Shannon Stapleton

Earlier the market got a short-lived boost from an ADP National Employment Report that showed U.S. private sector jobs rose far more than expected in December. The more comprehensive nonfarm payroll report on Friday will give a clearer picture of labor market strength.

Declining issues outnumbered advancers for a 2.14-to-1 ratio on the NYSE and a 2.54-to-1 ratio on the Nasdaq.

The S&P index recorded no new 52-week highs and 12 new lows, while the Nasdaq recorded one new high and 28 new lows.

Reporting by Sruthi Shankar and Shreyashi Sanyal in Bengaluru; Editing by Shounak Dasgupta

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