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US manufacturing gauge drops to eight-month low

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Arm Holdings down after tepid Q2 revenue forecast

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Eli Lilly ( LLY ) up as weight-loss drug cut heart failure risk in

trial

(Updated at 4:00 p.m. ET/2000 GMT)

By Chuck Mikolajczak

NEW YORK, Aug 1 (Reuters) -

U.S. stocks kicked off August sharply lower after a round of

economic data on Thursday spurred concerns the economy may be

slowing faster than anticipated while the Federal Reserve

maintains a restrictive monetary policy.

Equities initially opened higher, buoyed in part by

gains in Meta Platforms ( META ) after its quarterly results

topped expectations and the Facebook parent issued an upbeat

outlook for the third quarter. Its shares closed higher as the

biggest boost to the S&P 500.

Early gains, however, evaporated after data showed a

measure of

manufacturing activity

from the Institute for Supply Management (ISM) dropped to

an eight-month low in July at 46.8, signifying contraction.

"What you're seeing now, and you will probably see it

for the next month or two, is some kind of consolidation and

sideways price action," said Bill Strazzullo, chief market

strategist at Bell Curve Trading in Boston.

"The bigger picture bull trend is intact ... But we're

in a period now where the market is kind of digesting its gains

sideways, back and forth."

According to preliminary data, the S&P 500

lost 76.10 points, or 1.38%, to end at 5,446.20 points,

while the Nasdaq Composite lost 405.25 points to

17,194.15. The Dow Jones Industrial Average fell 508.81

points, or 1.25%, to 40,333.98.

August is typically one of the weakest months of the

year for stocks.

Other data showed the number of Americans filing new

applications for unemployment benefits

increased

to an 11-month high last week, suggesting some softening in

the labor market, although seasonal factors also played a role.

Investors will eye the government payrolls report on

Friday for any signs of further weakness in the labor market.

Both the S&P 500 and Nasdaq registered their biggest

daily percentage gains since February in the prior session,

boosted by a rally in chip shares after the Fed kept rates

steady, as expected.

Defensive sectors such as utilities and real

estate led gains, as geopolitical concerns over rising

tensions in the Middle East boosted the dollar and pulled

Treasury yields lower.

Declines in megacap names such as Apple ( AAPL ) and

Amazon ( AMZN ) ahead of their quarterly results due after the

closing bell weighed heavily on the tech and consumer

discretionary indexes, which were among the worst

performing of the 11 major S&P sectors.

Of the 342 companies in the S&P 500 that have reported

earnings through Thursday morning, 79.2% have topped analyst

expectations, according to LSEG data, slightly above the 79%

beat rate over the past four quarters. The estimated earnings

growth rate for the quarter is 13.3%, up from 10.6% on July 1.

The small-cap Russell 2000 slumped more than 3%

and for its biggest daily percentage drop since Feb. 13. Small

caps have been volatile recently as investors rotate between

cheaper names and more expensive stocks.

Nvidia ( NVDA ) slumped in a broader chip stocks selloff

sparked by Arm Holdings' conservative revenue forecast

and Qualcomm ( QCOM ) flagging a revenue hit from the impact of

trade curbs, dragging those stocks lower.

Moderna ( MRNA ) plunged after cutting its 2024 sales

forecast for COVID-19 and respiratory syncytial virus vaccines

by up to 25%.

Eli Lilly ( LLY ) rose after trial results showed

weight-loss drug Zepbound reduces the risk of hospitalization,

death and other outcomes for obese adults with a common type of

heart failure.