01:59 PM EDT, 09/03/2024 (MT Newswires) -- US equity indexes fell after midday Tuesday as technology shares slumped alongside a volatility spike while investors weighed the drop in government bond yields following a smaller-than-expected improvement in manufacturing.

The S&P 500 dropped 1.6% to 5,557.3, with the Nasdaq Composite down 2.6% to 17,245.8 and the Dow Jones Industrial Average 1.1% lower at 41,088.7 in recent trading Tuesday, the first trading day this week after Labor Day on Monday.

Technology sat at the bottom of the sector charts, down 3.5% intraday, with Nvidia ( NVDA ) , Taiwan Semiconductor Manufacturing Company ( TSM ) , and Advanced Micro Devices ( AMD ) leading the mega-caps lower. Energy and communication services were among the steepest decliners. The consumer staples industry group was the top performer, reflecting a defensive mood in markets.

In economic news, the Institute for Supply Management's US manufacturing index remained in contraction. While the index rose to 47.2 in August from 46.8 in July, it missed expectations for an improvement to 47.5 in a survey compiled by Bloomberg.

Since the 50 print in October 2022, the index has only been above 50 in one month, March 2024, according to a note from Jefferies. The 16-month streak of sub-50 contractionary readings that ended in March was the longest since August 2000 through January 2002, or 18 months, the note said.

"The environment for capex investment remains very challenging so long as interest rates remain elevated," Jefferies US Economist Thomas Simons said in the note. "The manufacturing sector has gone through a long rough patch as rates have risen."

The probability of a 25 basis-point cut in interest rates in a Federal Reserve meeting on Sept. 18 fell to 65% by Tuesday afternoon from 70% a day ago, according to the CME Group's FedWatch Tool. The remaining 35% likelihood was for a 50 basis-point drop, up from 30% a day earlier. The Fed will likely ease more than 25 basis points from the current 5.25% to 5.5% range if it foresees significant weakness ahead.

The CBOE's Volatility Index (VIX) surged 17.4% to 18.25, its highest in more than two weeks.

Most Treasury yields dropped, with the 10-year down 5.8 basis points to 3.85% and the two-year yield 3.1 basis points lower at 3.89%.

West Texas Intermediate crude oil plummeted 4.5% to $70.26 a barrel.

In company news, equity analysts at Wells Fargo ( WFC ) downgraded Boeing ( BA ) to underweight from equal weight, citing a less-optimistic view of the company's free cash flow opportunity and an expected equity raise that will likely further dilute shares. The analysts also lowered the company's price target to $119 from $185. Boeing ( BA ) slumped 7.3% intraday, the second worst performer on the Dow.

Gold fell 0.4% to $2,518.01 an ounce, and silver plunged 2.9% to $28.29.