US stocks dropped, and the Nasdaq fell three percent on Monday as investors dumped Apple, Internet and other technology shares, further shaking confidence in a group of stocks that has propelled the long bull market.

Conflicting signals over the state of play between the United States and China on their trade dispute added to caution in the market.

Shares of Apple Inc fell after the Wall Street Journal reported the company had cut production orders in recent weeks for all three iPhone models launched in September.

The iPhone maker's stock dropped four percent to 185.86 US dollars and is now down 19.9 percent from its October 3 record closing high in the wake of a disappointing holiday quarter sales forecast and weak outlooks from several suppliers. The SP 500 technology index, down 3.8 percent, led sector losses.

A 3D printed Apple logo is seen in front of a displayed stock graph, April 28, 2016. /Reuters Photo

Other market leaders – including the FANG stocks – also fell sharply. Shares of Facebook were down 5.7 percent, Amazon.com was down 5.1 percent, Netflix fell 5.5 percent and Alphabet fell by 3.8 percent.

Since the FANG outperformance run peaked on August 30, the group has underperformed the SP 500 by 16.25 percent. That is their worst underperformance since the first half of 2014 when they underperformed by around 20 percent.

“You're seeing that rotation away from tech. Certainly, the indexes are much more growth-oriented because of the sheer size of those companies now, and they dominate the indexes,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. “You're going to have more underperformance of the growth names.”

The SP utilities and real estate sectors were the only two that ended in positive territory.

The Dow Jones Industrial Average fell by 395.78 points, or 1.56 percent, to 25,017.44, the SP 500 lost 45.54 points, or 1.66 percent, to 2,690.73 and the Nasdaq Composite dropped by 219.40 points, or 3.03 percent, to 7,028.48.

Comments by New York Federal Reserve President John Williams on Monday that the US central bank is pushing ahead with gradual rate-hike plans next month as it marches toward a more normal policy stance may have added pressure to stocks.

Some investors questioned whether the Fed will be able to continue raising interest rates, possibly harming growth.

Richard Clarida, the Fed's newly appointed vice chair, said on Friday that US rates are nearing Fed estimates of a neutral rate, which “makes sense.”

(REUTERS)