The major equity exchanges sold off sharply on Thursday, with the S&P 500 down more than 2 percent, after slowing factory activity on the heels of a dire revenue warning from Apple 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 equity indexes down more than 2 percent, with the Nasdaq posting a 3 percent loss.

The S&P technology index was down 5.1 percent, its largest one-day percentage drop since August 2011. The Philadelphia SE Semiconductor index ended the session 5.9 percent lower.

A report from the Institute for Supply Management indicated that factory activity in December suffered its largest decline 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.

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

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

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

Bristol-Myers Squibb fell 13.3 percent after the company announced plans to buy rival Celgene for about $74 billion. Celgene rose 20.7 percent on the news.

Shares of U.S. commercial air carriers slid after Delta cut its fourth quarter revenue estimate. The S&P 1500 Airlines index sank 5.9 percent.

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.

Approximately 8.11 billion shares changed hands on the major domestic equity exchanges, as compared to the 9.16 billion share average over the past 20 trading days.

Manufacturing Falls

Manufacturing fell last month by more than forecast amid a growing trade war with China, figures from the Institute for Supply Management showed Thursday. The factory index declined to a two-year low of 54.1 in December from 59.3 the prior month. The 5.2-point drop has been exceeded just twice this century, both times during recessions: in the financial crisis a decade ago and following the Sept. 11, 2001, terror attack.

All five main components declined, led by new orders slumping the most in almost five years and the steepest slide for production since early 2012. Employment, delivery and inventory gauges fell, and ISM said just 11 of 18 industries reported growth in December, the fewest in two years.

The index compiled from a survey of manufacturers has tumbled sharply from a 14-year high in August, though it remains above the 50-dividing line between expansion and contraction. The 5.2-point drop from the prior month has been exceeded just twice this century, both times during recessions: in the financial crisis a decade ago and following the Sept. 11, 2001, terror attack.

Such weakness adds to signs that President Donald Trump’s trade war and a fading lift from fiscal stimulus are weighing on American producers. Previous reports showed five Federal Reserve indexes of regional manufacturing all slumped in December, the first time they’ve fallen in unison since May 2016.

Signs of trade-related spillovers in the world’s largest economies and other export-oriented nations are multiplying.

China’s official factory gauge has fallen into contractionary territory, and a global manufacturing index from JPMorgan Chase & Co. and IHS Markit dropped to the lowest level since September 2016. On Wednesday, Apple Inc. cut its revenue outlook for the first time in almost two decades, citing weaker demand in China.

Thursday’s ISM report showed a gauge of imports fell to the lowest since May 2017, while an export orders index climbed from an almost two-year low for its first gain in three months.

The measure of new orders fell to 51.1 while the reading for production dipped to 54.3, both the lowest since 2016. The index of supplier deliveries slumped to a one-year low of 57.5, indicating bottlenecks remain but are easing.

Meanwhile, the ISM gauge of prices paid fell to 54.9, the lowest since June 2017. While that may largely reflect the recent decline in oil, it adds to signs of contained inflation that provide little urgency for Fed rate hikes.

Jobless Claims Increase

The number of new claims for jobless benefits increased more than expected last week, but the underlying trend continued to point to labor market strength despite ongoing financial market volatility.

According to a report released by the Labor Department on Thursday morning, initial claims for state unemployment benefits rose by 10,000 claims to a seasonally adjusted 231,000 claims for the week ended Dec. 29. Data for the prior week was revised higher to show 5,000 more applications received than previously reported.

The Labor Department said claims for California and Virginia were estimated last week. Unadjusted claims for both of those states declined last week.

A Labor department official said there was no indication of an increase in filings last week from federal workers furloughed because of a partial shutdown of the government that is now in its second week. Data on claims filed by federal employees is released with a one-week lag.

Some 800,000 employees from the Departments of Homeland Security, Transportation, Commerce and others have been furloughed or are working without pay.

Claims data tends to be noisy around year-end holidays. The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell by 500 claims to 218,750 claims last week.

With the labor market viewed at being at or beyond full employment, the pace of job growth is slowing as employers struggle to find workers. Some of the moderation in employment gains has been attributed to tightening financial market conditions.

Thursday’s claims report also showed the number of people receiving benefits after an initial week of aid increased 32,000 to 1.74 million for the week ended Dec. 22. The four-week moving average of the so-called continuing claims rose 26,000 to 1.70 million.

Factory Gauge Decline Fuels Concerns That Growth Is Slowing

A gauge of manufacturing fell by the most since the 2008 recession a day after Apple cut its revenue outlook, fueling concern that the trade war with China is taking a bigger-than-expected toll on economic growth.

The Institute for Supply Management index dropped to a two-year low, missing all estimates in Bloomberg’s survey, led by new orders slumping the most in almost five years and the steepest production slide since early 2012. Just 11 of 18 industries reported growth, the fewest in two years.

“There’s just so much uncertainty going on everywhere that businesses are just pausing,” Timothy Fiore, chairman of ISM’s manufacturing survey committee, said in an interview. “No matter where you look, you’ve got chaos everywhere. Businesses can’t operate in an environment of chaos. It’s a warning shot that we need to resolve some of these issues.”

The weakness builds on signs that President Donald Trump’s trade war and a fading lift from fiscal stimulus are weighing on American producers. Previous reports showed five Federal Reserve indexes of regional manufacturing all slumped in December, the first time they’ve fallen in unison since May 2016. Together, those are troubling indications for the economy ahead of the monthly jobs report due Friday, showing how the labor market fared at the end of 2018.

The ISM index compiled from a survey of manufacturers has tumbled sharply from a 14-year high in August, though it remains above the 50-dividing line between expansion and contraction. The 5.2-point drop from the prior month has been exceeded just twice this century, both times during recessions: in the financial crisis a decade ago and following the Sept. 11, 2001, terror attack.

Signs of trade-related spillovers in the world’s largest economies and other export-oriented nations are multiplying. China’s official factory gauge has fallen into contractionary territory, and a global manufacturing index from JPMorgan Chase & Co. and IHS Markit dropped to the lowest level since 2016.

And Apple may not be the only company with lower earnings. Several manufacturers in the ISM report noted tariffs and higher prices have made operations less competitive, though just over a third of surveyed firms mentioned trade tariffs, down from the peak in November when that figure was 50 percent, Fiore said.

While there could be a rebound in the near term if a trade deal is reached between China and the U.S., the underlying moderation in economic activity projected in 2019 likely means that we’ve already seen conditions peak. After months of having only a minimal impact on the sector, trade tensions appear to be finally weighing meaningfully on demand for manufactured goods.

Thursday’s ISM report showed a gauge of imports fell to the lowest since May 2017, while an export orders index climbed from an almost two-year low for its first gain in three months. Exports will likely continue weakening as global demand wanes, companies fail to pass down price increases and margins tighten.

The measure of new orders and the reading for production both eased to the lowest since 2016. The index of supplier deliveries slumped to a one-year low, indicating bottlenecks remain but are easing.

Recession indicators are picking up. Economists surveyed by Bloomberg last month lifted their odds of contraction in the coming year to 20 percent from 15 percent, the first rise in 18 months. A New York Fed gauge puts the chances of a recession at almost 16 percent a year from now, according to the latest available data. That’s the highest probability since 2008.

Gloomier data may give Fed policy makers, who have already said they intend to slow the pace of interest-rate hikes, more reason to pause. Ahead of the ISM report on Thursday, Dallas Fed President Robert Kaplan said the central bank should put rates on hold as it waits to see how uncertainties about global growth, weakness in interest-sensitive industries and tighter financial conditions play out.

Meanwhile, ISM prices paid gauge fell to the lowest since June 2017. While that may largely reflect the recent plunge in oil, it adds to signs of tame inflation that provide little urgency for Fed rate hikes.