Stocks plunged on Friday, despite Thursday's rise in the U.S. Leading Economic Indicators Index, as the gap between reality and perception of financial economic conditions grew more difficult to discern.

Friday's 2.6% plunge in stocks occurred after Thursday's report that the U.S. Leading Economic Indicators Index increased one-half of 1% in July to 112.2, following the one-half of 1% ticks down in May and June. Housing permits, unemployment insurance claims, and stock prices drove the improvement in July.

"The manufacturing sector continues exhibiting signs of weakness and the yield spread was negative for a second consecutive month," said Ataman Ozyildirim, director of economic research at The Conference Board, which tracks the LEI monthly. "While the LEI suggests the U.S. economy will continue to expand in the second half of 2019, it is likely to do so at a moderate pace."