In yet another worrying sign for the U.S. economy, stocks on Wall Street suffered a significant decline on Thursday amid signals of slowing growth. The S&P 500 plunged by 1.7% during afternoon trading following disappointing data on U.S. manufacturing, which dampened an earlier morning rally. The Dow Jones Industrial Average experienced a drop of 630 points, or 1.5%, while the Nasdaq composite tumbled 2.7%.

Even more concerning was the bond market's reaction, as the yield on the 10-year Treasury fell below 4%, reaching levels last seen in February. The data released on Thursday added to other reports that highlighted a surge in the number of U.S. workers seeking jobless benefits, reaching its highest level in a year. However, there was a silver lining, as productivity among U.S. workers showed improvement during the spring.

These figures are likely to alleviate upward pressure on inflation, giving the Federal Reserve more room to maneuver and potentially lower interest rates in the near future. Just one day earlier, Fed Chair Jerome Powell hinted at the possibility of rate cuts starting in September, as inflation may have slowed enough to warrant it. However, concerns have been raised that the U.S. economy could buckle under the pressure of historically high rates held by the Fed for nearly a year.

Companies heavily reliant on the strength of the economy saw their stocks take a drastic hit on Wall Street. Notably, energy stocks in the S&P 500 fell by 2.5%, while industrial companies weakened by 2.2%. The Russell 2000, which represents small stocks, experienced a sharp decline of 3.4%. These stocks had previously surged on hopes that interest rates would decrease while the economy remained solid, a combination that favored their growth.

Investor sentiment remains uncertain, especially considering the highly anticipated jobs report expected to be released on Friday. Economists predict a slight slowdown in U.S. hiring for the previous month, with hopes for a balanced reading that neither exacerbates inflation concerns nor fuels recession worries. However, the effects of Hurricane Beryl could potentially skew the figures, cautioning against making immediate judgments based on the headline number alone.

This economic climate poses additional challenges for investors, given the already high market prices following significant rallies. "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," explained Jeff Klingelhofer, a portfolio manager at Thornburg Investment Management.

It is worth noting that the S&P 500 would have experienced an even greater downturn on Thursday if not for the positive performance of companies like Meta Platforms. Reporting better-than-expected results for the spring, Meta, the parent company of Facebook and Instagram, witnessed a 4% increase in stock value, consequently pushing the S&P 500 higher. This comes after a series of underwhelming performances from other influential Big Tech stocks, collectively known as the "Magnificent Seven," which had previously driven the S&P 500 to numerous record highs.

As uncertainty continues to grip the market, investors remain wary of inflated prices and heightened expectations. With concerns over a potential recession growing, the focus now shifts to forthcoming economic data and the Fed's decision on interest rates, both of which will play key roles in charting the path forward for Wall Street.