NEW YORK — Stocks on Wall Street are slumping alongside bond yields Thursday after more signals suggested the U.S. economy’s growth is slowing.

The S&P 500 was down 1% in midday trading after weak data on U.S. manufacturing helped extinguish a rally from earlier in the morning. The Dow Jones Industrial Average was down 508 points, or 1.2%, as of 11:55 a.m. Eastern time, and the Nasdaq composite was 1.4% lower.

The action was even stronger in the bond market, where the yield on the 10-year Treasury yield tumbled below 4%, back to where it was in February. Besides the soft manufacturing data, other reports in the morning showed that the number of U.S. workers applying for jobless benefits hit its highest level in a year and that productivity for U.S. workers improved during the spring.

Economic Data Signals Potential Rate Cuts

Together, the data likely remove upward pressure on inflation and give more leeway for the Federal Reserve to cut interest rates soon. A day earlier, yields sank after Fed Chair Jerome Powell gave the clearest indication yet that inflation may have slowed enough for an easing of rates to begin in September.

But the data also raised worries that the U.S. economy could buckle under the accumulated weight of rates that the Fed has been holding at a two-decade high for roughly a year. Such high rates have made it more expensive to borrow to buy a house, car or anything on credit cards. And it could take months to a year for the full effects of a rate cut to filter out into the economy.

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Market Sectors React to Economic Signals

Stocks of companies whose profits are most closely tied to the economy’s strength had the sharpest tumbles on Wall Street. Energy stocks in the S&P 500 fell 2.2%, for example, while industrial companies in the index weakened by 2.1%.

The small stocks in the Russell 2000 dropped 2.9%. They had soared more than the rest of the market last month on hopes that the economy would remain solid as interest rates come down, a potent cocktail for them.

The weak economic numbers raise the stakes for an already highly anticipated report coming on Friday. Economists expect it to show a slight slowdown in U.S. hiring last month, and Wall Street’s hope is for a Goldilocks type of reading that is neither so hot that it puts upward pressure on inflation nor so cold that it worsens worries about a possible recession.

But the figures could be skewed by the effects of Hurricane Beryl, warns Kevin Khang, senior international economist at Vanguard. It could mean a headline number that looks much worse than underlying factors say.

That makes conditions even more challenging for investors when prices are so high after markets have already rallied so much.

“The economy and overall the consumer is stretched, and we just don’t have a lot of wiggle room to react in an appropriate way if any geopolitical or any other unexpected risks materialize,” said Jeff Klingelhofer, portfolio manager at Thornburg Investment Management.

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Tech Giants’ Earnings Impact Market

The S&P 500 would have dropped even more Thursday if not for Meta Platforms and other stocks that reported better results for the spring than expected. Meta, the company behind Facebook and Instagram, was the biggest single force pushing upward on the S&P 500 and rose 6.4% after reporting profit and revenue that topped analysts’ expectations.

Uncertainty was high heading into its report after other members of the highly influential group of stocks known as the “Magnificent Seven” had underwhelmed investors. This handful of Big Tech stocks drove the S&P 500 to dozens of records this year, in part on the frenzy around artificial-intelligence technology, but their momentum turned last month on worries investors had taken their prices too high and expectations had grown too difficult.

Some of the concern has centered around how much companies are investing in AI, and how quickly they will see profits because of it. Meta Platforms said late Wednesday that it expects “significant” growth in spending and investment next year on AI research and product development.

While analysts said such spending will have an impact on its results, Meta Platforms highlighted how it’s already seeing some benefits from it, including traction with its AI glasses.

Other technology companies got a less welcome reception from investors. U.K. chip giant ARM Holdings delivered better profit and revenue for the latest quarter than expected, for example. But its U.S.-listed shares nevertheless tumbled 16%. It did not increase its forecasts for revenue and profit this fiscal year, despite its strong numbers to start it.

Amazon and Apple, which like Meta Platforms are also members of the “Magnificent Seven,” will report their latest results after trading finishes for the day. Apple fell 1%, and Amazon dropped 1.2%.

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Global Market Reactions

In the bond market, the yield on the 10-year Treasury slumped to 3.98% from 4.04% late Wednesday and from 4.70% in April.

Traders are largely convinced that the Federal Reserve will cut its main interest rate in September. The only question for them is how many times it may cut this year and next.

Across the Atlantic, the Bank of England cut interest rates for the first time since the onset of the COVID-19 pandemic in early 2020. Inflation in the U.K overall had already hit the bank’s target of 2%, something the U.S. central bank is still reaching for.

The FTSE 100 in London fell 1% after erasing an earlier gain, and stock indexes were also weaker across much of Europe and Asia.

Japan’s Nikkei 225 fell 2.5%. A day earlier, the Bank of Japan raised interest rates, a move that helped push up the value of the yen against the U.S. dollar. Such swings can hurt the profits of exporters, and Toyota’s stock tumbled 8.5% in Tokyo Thursday even though it reported a rise in profit.