Stocks slid on Wednesday, a second day of selling that has shattered a relatively calm period for Wall Street, as investors faced new evidence that the world’s industrial sector is weakening in the face of the trade war.
The S&P 500 dropped 1.8 percent, its worst day since late August. Stocks in Europe tumbled.
The selling this week began after a report on manufacturing activity showed that factory output in the United States slowed in September to levels last seen at the end of the financial crisis a decade ago. The data was fresh indication that the trade conflict between Washington and Beijing is chipping away at the industrial base in the United States, after having already dented factories in China, Japan and Germany.
Corporate reports on Wednesday, on auto sales and the airline sector, also contributed to the market’s dour mood.
“There’s no question that the global economy is slowing and that’s beginning to show up in U.S. data,” said Scott Clemons, chief investment strategist at private bank Brown Brothers Harriman.
The primary culprit for the economic slowdown is the trade war between the United States and China. On Tuesday, the World Trade Organization cut its forecast for growth in trade.
Although both Washington and Beijing have taken measures to lower the tension between them, investors remain on edge, wary of the next downdraft, and eager to see a lasting breakthrough in the next round of talks between the two sides.
“This is the markets unequivocally insisting that there be verifiable, material progress in next weeks trade talks between the U.S. and China,” said Julian Emanuel, chief equity and derivatives strategist at brokerage firm BTIG.
On Wednesday, industrial companies and materials stocks — a category that includes chemical companies and fertilizer manufacturers — suffered some of the steepest drops.
Shares of airlines also fell sharply after Delta’s updated forecast on third-quarter earnings disappointed the market, and shares of automakers were down sharply after Toyota and Honda reported a steep decline in sales in the United States.
Large technology companies weighed heavily on the market. Apple and Microsoft — the two largest companies in the S&P 500, by market value — both fell sharply.
Sudden outbreaks of economic panic have been a recurrent feature of the markets in the past year, part of a dynamic of worry and relief that has whipsawed investors repeatedly.
In December stocks plummeted 9 percent, before soaring almost 8 percent in January after the Federal Reserve indicated it would cut interest rates to offset potential economic damage from the trade fight. Similar swings took place in May and June.
October’s decline stands out in part because trading was remarkably muted in September. But growing evidence of economic damage tied to the trade war has pushed the issue to the forefront of investors’ minds once again.
While the United States is less exposed to trade wars than other large economies, it is not completely immune. Economists now expect that economic growth in the country will fall below 2 percent next year, according to estimates compiled by FactSet.
And whether that United States can generate even that lower level of growth hinges on whether consumer spending — which accounts for about two-thirds of economic activity — remains strong.
On Friday, the Labor Department will report on the monthly pace of hiring in the United States, and economists expect that report to show unemployment remained near a 50-year low in September. That could help calm investors’ nerves.
“That’s more people with more jobs and more money,” said Mr. Clemons. “And that’s 68 percent of the economic equation.”
In Europe, where manufacturing accounts for a larger share of economic output, the selling on Wednesday was sharper than in the United States. Britain’s FTSE 100 dropped more than 3 percent, its worst decline this year, while Germany’s Dax index dropped 2.8 percent.
Germany has become a point of concern for investors, with its factory orders dropping as Chinese companies, hit by tariffs on exports to the United States, purchase less German machinery.
At the same time, Britain remains enmeshed in negotiations over Brexit and faces huge uncertainty over its future trading relationship with Europe. Prime Minister Boris Johnson is set to unveil a new proposal on Wednesday for the terms of leaving the European Union at a Conservative Party conference, but there is still a risk that Britain will leave the bloc at the end of the month without a deal.
Stocks had weakened slightly, in Asia but not to the same extent experienced in Europe
President Trump, who has a close eye on the stock market and has in the past touted its gains as a report card on his presidency, blamed the decline on an impeachment inquiry by Democrats. “All of this impeachment nonsense, which is going nowhere, is driving the Stock Market, and your 401K’s, down,” he wrote on twitter on Wednesday.
But concerns about the economic outlook were apparent in other financial markets also. Yields on government bonds and crude oil prices, both of which are reactive to economic concerns, also fell.