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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

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Indexes down: Dow 1.57%, S&P 1.76%, Nasdaq 2.76%

(Updated at 2:18 p.m. ET/1818 GMT)

By Chuck Mikolajczak

NEW YORK, Aug 1 (Reuters) -

U.S. stocks tumbled on Thursday as early gains evaporated,

after a round of economic data 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 were last up 4.37% and

$495.55.

Stocks turned lower, however, 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.

"The ISM is really what started the ball rolling today

and then selling causes more selling," said Tim Ghriskey, senior

portfolio strategist at Ingalls & Snyder in New York.

"We're still in earnings season and there will be

positive surprises that will probably drive the market higher

and there may be negative surprises as well... but if you get

something negative like ISM, it causes profit-taking."

The Dow Jones Industrial Average fell 641.99

points, or 1.57%, to 40,200.80, the S&P 500 lost 97.64

points, or 1.76%, to 5,424.66 and the Nasdaq Composite

lost 485.21 points, or 2.76%, to 17,114.19.

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.

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 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.

The small-cap Russell 2000 slumped over 3% and

was on track for its biggest daily percentage drop since Feb 13.

Small caps have been among the first stocks to benefit as

investors rotate out of more expensive stocks.

Nvidia ( NVDA ) slumped 8.21% in a broader chip stocks

rout sparked by Arm Holdings' conservative revenue

forecast and Qualcomm ( QCOM ) flagging a revenue hit from the

impact of trade curbs, dragging those stocks down 17.01% and

9.74%, respectively.

Moderna ( MRNA ) slumped 20.73% after cutting its 2024

sales forecast for COVID-19 and respiratory syncytial virus

vaccines by up to 25%.

Eli Lilly ( LLY ) rose 3% 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.

Declining issues outnumbered advancers by a 2.22-to-1 ratio

on the NYSE, and by a 3.58-to-1 ration on the Nasdaq.

The S&P 500 posted 50 new 52-week highs and seven new

lows, while the Nasdaq Composite recorded 61 new highs and 144

new lows.