Slowdown Fears Fuelled By US Economic Data, Apple Warning Drag Wall Street

Wall Street plunged on Thursday after slowing US factory activity on the heels of a dire revenue warning from Apple Inc fueled fears of a global economic slowdown.

The magnitude of Apple's holiday quarter revenue shortfall sent shockwaves through the technology sector, which pulled all three major US stock indexes down more than 2 per cent, with the Nasdaq posting a 3 per cent loss.

S&P Technology companies slid 5.1 per cent, its biggest one-day percentage drop since August 2011. The Philadelphia SE Semiconductor index ended the session 5.9 per cent lower.

Late Wednesday, Apple chief executive Tim Cook wrote in a letter to investors that the company had not foreseen the extent of China's economic deceleration, which was exacerbated by US-China trade tensions. The iPhone maker's shares dropped 10.0 per cent.

A report from the Institute for Supply Management showed U.S. factory activity in December suffered the biggest drop since October 2008, the height of the financial crisis. Its PMI reading, while still in expansion territory, hit its lowest level in more than two years.

"The Chinese slowdown was expected but today's softer-than-expected ISM number took investors by surprise because the U.S. seemed to be the only port in the storm," said Sam Stovall, chief investment strategist of CFRA Research in New York. "But now it appears that our economic growth is facing trade related headwinds."

"Investors are worried that this is an indication that things could be getting worse from here and Apple is only the tip of the iceberg," Stovall added.

Major automakers reported weak U.S. new car sales in December, with Ford Motor Co and General Motors Co reporting sales falling by 8.8 per cent and 2.7 per cent, respectively. Ford shares fell 1.5 per cent, while GM dropped 4.1 per cent.

The Dow Jones Industrial Average fell 660.02 points, or 2.83 percent, to 22,686.22, the S&P 500 lost 62.14 points, or 2.48 per cent, to 2,447.89 and the Nasdaq Composite dropped 202.43 points, or 3.04 per cent, to 6,463.50.

Of the 11 major sectors in the S&P 500, all but defensive real estate and utilities stocks closed in the red.

Trade-sensitive industrials also weighed on the Dow, led by Caterpillar Inc, 3M Co and Boeing Co.

Bristol-Myers Squibb Co shares dropped 13.3 per cent after the drugmaker announced plans to buy rival Celgene Corp for about $74 billion. Celgene shares jumped 20.7 per cent on the news.

Shares of US commercial air carriers slid after Delta Air Lines cut its fourth quarter revenue estimate. The S&P 1500 Airlines index sank 5.9 per cent.

Yields on 2-year Treasuries dipped below the federal funds effective rate for the first time since 2008, a move many believe suggests the central bank will not be able to continue its monetary tightening policy. The outlook for higher rates has been considered a headwind to equities in recent months.

Declining issues outnumbered advancing ones on the NYSE by a 1.39-to-1 ratio; on Nasdaq, a 2.28-to-1 ratio favored decliners.

The S&P 500 posted no new 52-week highs and 13 new lows; the Nasdaq Composite recorded 6 new highs and 48 new lows.

Volume on US exchanges was 8.11 billion shares, compared to the 9.16 billion average over the last 20 trading da