By Chris Dieterich
The Dow Jones Industrial Average slumped to its lowest level
since late April as developing geopolitical concerns in Ukraine and
the Middle East left investors in a cautious mood.
Dow industrials fell 75.07 points, or 0.5%, to 16368.27, after
rising as many as 61 points in the morning.
Demand increased for bonds as stocks declined. The yield on
benchmark 10-year Treasury U.S. notes fell to 2.424% from 2.473%
late on Wednesday, the lowest level since June 2013. Bond yields
fall when prices rise.
"There are some geopolitical question marks out there and we're
seeing a flight to safety," said Tom Carter, a managing director at
JonesTrading Institutional Services.
U.S. stocks have been under pressure in recent weeks as tensions
in Europe and the Middle East have put investors on edge. Investors
also are weighing how an improving U.S. economy might impact the
Federal Reserve's easy-money policies, which are widely cited as a
driving factor behind the multiyear bull market.
The Dow industrials finished Thursday down 4.5% from its July 16
record high of 17138.20.
The S&P 500 dropped 10.67 points, or 0.6%, to 1909.57, while
the Nasdaq Composite Index declined 20.08 points, or 0.5%, to
4334.97.
Trading was choppy, with defensive utility stocks climbing in
line with bonds.
Activity was driven by short-term traders adjusting positions on
headlines about developments on the Russia-Ukraine border and the
U.S. military's efforts to drop emergency aid into Iraq, traders
said. Other longer-term investors said they are standing pat or
looking to buy stocks if the drop continues.
"Markets are behaving in a very risk-off way, but you have to
ask if the drivers of that are real or if it is being driven by
other factors," said Krishna Memani, chief investment officer at
OppenheimerFunds, referring to geopolitical headlines and
short-term trader positioning.
"Earnings and growth is better today than it has been at any
point this year," said Mr. Memani, whose firm oversees about $237
billion. "It's still a buying opportunity as opposed to hiding out
in the corner."
He said his firm is looking for to buy stocks in the U.S. and
emerging markets if the weakness persists.
Major benchmarks initially ticked higher on Thursday after a
report showed the number of Americans filing for initial jobless
claims fell to 289,000 in the latest week, the second-lowest level
of the year. Economists had expected new claims of 300,000.
But U.S. stocks gave back gains in midmorning trading in tandem
with benchmarks in Europe, which slid to the day's lows after
European Central Bank President Mario Draghi warned that tensions
between Russia and the West over Ukraine pose a risk to the
region's economic recovery.
The Stoxx Europe 600 fell 0.7% and Germany's DAX declined 1%,
closing at session lows, while the yield on the safe-haven German
10-year bond briefly hit an all-time low of 1.08%. The ECB left
interest rates on hold Thursday but Mr. Draghi said that the
central bank is ready to act if the economy stalls.
John Spallanzani, chief macro strategist at broker GFI Group
Inc., said that despite recent declines in U.S. stocks, the U.S.
market is benefiting from money that is flowing out of European
stock funds. Ultralow rates leave few alternatives to stocks, he
said, which has limited recent declines.
"Saber rattling has put a damper on Europe," he said. "Right
now, the U.S. is the best house in a bad neighborhood."
For most, the Fed remains the biggest concern. Market-watchers
say that each U.S. economic data point in the weeks ahead will be
evaluated both as a milestone for growth and as a yardstick for how
quickly the Fed can justify raising interest rates. Most expect
that to happen in the middle of next year.
"We were in an environment where nothing seemed to impact the
stock market," said Kristina Hooper, U.S. investment strategist at
Allianz Global Investors, which has $475 billion in assets under
management. "Now there is this growing recognition that the Fed
could raise rates sooner and it's making stocks more vulnerable to
everything."
21st Century Fox climbed 4.5% as the biggest gainer on the
S&P 500 after reporting a quarterly profit that exceeded
expectations. The news came in the wake of Fox's decision to drop
its takeover bid for Time Warner Inc.
Duke Energy advanced 1.1% after the utility's quarterly earnings
rose 80% and raised its earnings guidance for the year.
Mylan slipped 3% after the generic-drug company posted a 30%
fall in earnings as higher expenses masked a revenue rise.
Shares of 3-D printing companies jumped after Stratasys topped
quarterly earnings expectations. Stratasys added 15%, while ExOne
climbed 6.9%.
Costco Wholesale fell 1.5% after posting a 5% increase in July
sales, excluding gasoline, falling short of analysts' estimates for
6% growth.
Gold futures added 0.3% to settle at $1,310.80 a troy ounce.
Crude-oil futures rose 0.3% to $97.17 a barrel. The dollar advanced
against euro but fell versus the yen.
Most Asian stocks declined, led lower by China. The Shanghai
Composite slumped 1.3%, down for the third day in a row. The Hang
Seng Index dropped 0.8%. Japan's Nikkei Stock Average bucked the
regional declines, adding 0.5%.
Write to Chris Dieterich at chris.dieterich@wsj.com