NEW YORK - It was a rough start to October for financial markets Wednesday, with the Dow Jones industrial average dropping more than 200 points as investors reacted to a round of negative economic news in the U.S. and abroad.
At first stocks were driven lower by word that German manufacturing had slowed last month. The selling accelerated after a separate survey indicated U.S. manufacturing grew at a lower pace than expected.
"A lot of people thought this economic data was going to be robust, so when it was weak, everyone moved to reposition," said Tom di Galoma, head of rates and credit trading at ED&F Man Capital.
Investors were also selling stocks following news that the first case of Ebola had been diagnosed in the U.S. Investors dumped airline stocks and bought a handful of drug companies working on experimental Ebola treatments.
The blue chip Dow index lost 238.19 points, or 1.4 percent, to close at 16,804.71. The Standard & Poor's 500 index lost 26.13 points, or 1.3 percent, ending at 1,946.16 and the Nasdaq composite lost 71.30 points, or 1.6 percent, to finish at 4,422.09.
The report that set off most of the selling in the U.S. was the Institute for Supply Management's monthly manufacturing survey, one of the more closely watched economic indicators that investors look for each month. The ISM index came in at 56.6, below the 58.5 economists expected.
In Germany, Markit reported that manufacturing contracted in September, the latest sign that Europe is being affected by the economic sanctions on Russia. It was the first slowdown in 15 months.
The report came a day before Naples, Italy, hosts the European Central Bank's latest policy meeting. There will be great interest in what ECB President Mario Draghi will say about possible monetary stimulus from the central bank following the recent weak economic news.
In European markets, Germany's DAX finished 1 percent lower, France's CAC 40 lost 1.2 percent and the U.K.'s FTSE 100 ended down 1 percent.
"We're in a global economy these days, and U.S. companies get a lot of their revenue and earnings from outside the U.S.," said Matthew Rubin, director of investment strategy at Neuberger Berman. "Investors have valid concerns that the European slowdown could hit companies' bottom line."
Traders moved quickly into U.S. government bonds. The yield on the 10-year Treasury note dropped to 2.39 percent from 2.49 percent late Tuesday, a big move. Gold prices rose $3.90, or 0.3 percent, to $1,215.50 an ounce.
Utility stocks, which investors favor during times of volatility because of their higher-than-average dividends, were among the few that rose Wednesday. The Dow Jones utility index, a collection of 15 utility companies, increased 0.4 percent.
Investors now look forward to Friday, when the U.S. government will release the monthly job figures. Economists are expecting that employers added 215,000 workers last month and no change in the unemployment rate, which stands at 6.1 percent. ADP earlier today said private sector employers added 213,000 jobs last month.
Despite October's bad start, analysts believe the next three months should be good for investors.
In recent years, the stock market has risen sharply in the last quarter of the year. The S&P 500 rose 10 percent in the fourth quarter last year and 11 percent in the same period in 2011. In 2012 the S&P 500 did fall in the fourth quarter, but only by 1 percent.
"I am not overly concerned about (Wednesday's sell-off)," Rubin said. "The reports were negative today, but most investors believe the U.S. economy is on solid footing and is still on track for a recovery. I still think it's a good time to be an investor in the market."
News that the first case of Ebola was diagnosed in the U.S. reverberated through several industries. Airlines were among the hardest hit as investors feared people would be discouraged from traveling. American Airlines fell $1.09, or 3 percent, to $34.39 and Delta fell $1.25, or 3.5 percent, to $34.90. Southwest Airlines fell $1.22, or 3.6 percent, to $32.55.
Drugmakers developing potential vaccines or treatments for Ebola rose. Tekmira Pharmaceuticals (TKMR) jumped $4.11, or 17 percent, to $27.85 after the company said it may start clinical trials for an Ebola drug this year. NewLink Genetics (NLNK), another company looking into Ebola treatments, rose $1.53, or 7 percent, to $22.95.
In commodities, oil fell to its lowest price since April 2013 on concerns that a weakening global economy will lead to lower oil demand. Benchmark U.S. crude fell 43 cents to close at $90.73 a barrel on the New York Mercantile Exchange. Brent crude, a benchmark for international oil used by many U.S. refineries, fell 51 cents to close at $94.16 on the ICE Futures exchange in London.
In other energy futures trading on the NYMEX, wholesale gasoline rose 1.2 cents to close at $2.450 a gallon, heating oil rose 0.5 cent to close at $2.656 a gallon and natural gas fell 9.8 cents to close at $4.023 per 1,000 cubic feet.
Silver rose 20 cents to $17.26 an ounce. Copper rose three cents to $3.04 a pound.