US stocks recover losses after early sell-off

Stocks on Wall Street rebounded from an early sell-off Thursday afternoon, placing the market on track to break a steep two-day skid.

The Dow Jones Industrial Average was up modestly after tumbling as much as 335 points in the early going after another disappointing economic report stoked worries about the health of the U.S. economy. The S&P 500 and Nasdaq also recovered from the early rout.

Technology and health care stocks powered much of the broad gains. Financial companies were the only laggard as declining bond yields weighed on banks.

Investors were jolted by surprisingly slow growth in the U.S. services sector last month, the weakest in three years. That followed troubling news on business hiring and manufacturing earlier this week that knocked the market lower.

Stocks are off to a turbulent start in October. The benchmark S&P 500 index is down 2.4% for the month so far, wiping out all the index's gain from September.

The uncertainty about the economy mostly stems from the costly and long-running trade war between Washington and Beijing. Traders now also have to factor a potential trade conflict between the U.S. and Europe. The Trump administration imposed tariffs on European goods Wednesday after getting permission to do so from the World Trade Organization.

KEEPING SCORE: The S&P 500 index rose 0.7% as of 3 p.m. Eastern time. The Dow gained 90 points, or 0.4%, to 26,168. The Nasdaq, which is heavily weighted with technology stocks, climbed 1%. The Russell 2000 index of small-company stocks also rebounded from an early stumble, gaining 0.5%.

Major stock indexes in Europe were mixed.

ANOTHER WEAK SIGNAL: The Institute for Supply Management, an association of purchasing managers, said Thursday that its non-manufacturing index sank to 52.6 from 56.4 in August. Readings above 50 signal growth, but September’s figures are the lowest since August 2016.

The index tracks a sector that accounts for more than two-thirds of the U.S. economy and which has been mostly resilient in the face of the U.S.-China trade war that has been squeezing American manufacturers.

On Tuesday, a private index of U.S. manufacturing output dropped to its lowest level since the recession year 2009.

SECTORS: Technology stocks notched gains, led by software maker Microsoft, which rose 1.3%, and chipmaker Nvidia, which gained 4.3%.

Pfizer was among the big gainers in the health care sector, climbing 1.7%.

Bank stocks suffered losses as bond yields slumped in another sign that investors are becoming more cautious. The yield on the 10-year Treasury fell to 1.53% from 1.59% late Wednesday. The lower yields hamper a bank's ability to raise interest rates on loans. JPMorgan Chase dropped 0.5%.

MORE ON THE ECONOMY: Investors are also looking ahead to a key economic bellwether on Friday, the government’s tally of hiring in September. The Labor Department is expected to report that the U.S. employers added 145,000 jobs last month, up from 130,00 in August, according to analysts polled by FactSet.

The prospect of more encouraging economic data could be a factor in the market’s afternoon rebound, said Willie Delwiche, investment strategist at Baird.

“People are maybe stepping back and saying, ‘Hey, we still have another report this week with the jobs data tomorrow, and maybe we got a little too far ahead of ourselves in overreading this non-manufacturing data,’” Delwhiche said.

THE FED: The discouraging economic data this week has also shifted investors’ expectations of further interest rate cuts by the Federal Reserve.

The central bank has lowered rates by a quarter-percentage point twice this year. The odds that the Fed will cut rates again at the end of this month are now running above 88%, according to the CME Group. Meanwhile, expectations that the Fed will lower rates in December are running at round 54%, up from 48% a day ago.

BUBBLY FORECAST: PepsiCo rose 3.5% after the company told investors it expects to meet or beat its target for revenue growth in 2019. The company set a goal of 4% growth in revenue from existing businesses. The solid forecast followed surprisingly good third quarter profit and revenue.

BUSTED GEAR: Tesla fell 4.8% after the electric car maker fell short of sales forecasts in the third quarter. The company delivered a record 97,000 vehicles, but still fell short of analysts’ forecasts for 99,000 vehicles. Tesla is also lagging behind the pace it needs to reach CEO Elon Musk’s sales goal for the entire year.

LONG EXPOSURE: GoPro plunged 19.6% after the camera maker cut its profit and revenue forecasts for the year because of production delays. It is shifting shipments of its latest camera, the HERO8 Black, to the fourth quarter.

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AP Business Writer Damian J. Troise contributed.