By Chris Dieterich
Financial markets were rattled by geopolitical flare-ups on
Thursday, sending U.S. stocks tumbling to their worst losses in
months and investors reaching for the safety of gold and Treasury
bonds.
Stocks slid to session lows around midday after a Malaysia
Airlines passenger jet crashed near the Russia-Ukraine border.
Selling accelerated late in the day after the Israeli military
began a ground invasion into the Gaza Strip.
The Dow Jones Industrial Average finished down 161.39 points, or
0.9%, to 16976.81, its biggest one-day slide in two months.
The S&P 500 shed 23.45 points, or 1.2%, to 1958.12 and the
Nasdaq Composite Index dropped 62.52 points, or 1.4%, to
4363.45.
The yield on benchmark 10-year U.S. Treasury notes fell to
2.475%, down from 2.549% late Wednesday. Bond prices move in the
opposite direction as yields. Gold futures rose 1.3% to settle at
$1,316.70 a troy ounce. Crude-oil futures added 1.8% to $103.13 a
barrel, the most in a month. Investors often buy gold and low-risk
bonds to hedge riskier investments during times of political or
economic instability.
"You've got a ton of geopolitical risks out there," said Phil
Orlando, chief equity strategist at Federated Investors. "Any one
of these is a tinderbox that could explode."
Thursday's declines provided a jolt to investors who in recent
weeks had grown accustomed to steady gains for U.S. stocks in
mostly placid trading. The Dow notched its 15th record high of the
year on Wednesday, capping a stretch of gains that coincided with
signs of an improving U.S. economy and firm corporate earnings.
Thursday marked the first time that the S&P 500 rose or fell
more than 1% since April 16, a stretch of calm trading last seen in
1995.
Investors said that Thursday's sharp losses underscored the
cautious tone that persists even as stocks have reached new highs.
Concerns about potential changes to the Federal Reserve's monetary
policy in the coming months, as well as over the valuations for the
riskiest part of the stock market, have kept investors on edge.
Michael Palmer, options specialist at Group One Trading, an
options market maker in the CBOE Volatility Index, said he saw a
"considerable spike in activity" as news reports about Ukraine
rushed in. The VIX, an options-based measure of future swings in
the S&P 500, surged 32% in recent trading, on pace to 14.54,
its biggest one-day rise of the year.
"The S&P dropped like a rock as soon as [the passenger jet
news] came out," said Scott Wren, senior equity strategist at Wells
Fargo Advisors. "These things can come out of nowhere."
Still, investors voiced skepticism that Thursday's developments
could derail the market rally. Mr. Wren said he's telling his
retail clients that, with the U.S. and global economies improving,
stocks look like strong investments.
"We don't think that this situation in and of itself will lead
to a continued, meaningful selloff," Mr. Wren said. "But I would
welcome a pullback right now -- our view is that a year from now
the market is going to be higher."
Ukraine's state air traffic control service confirmed that a
Malaysia Airlines plane carrying 295 passengers had crashed and
said a special investigation commission has been rushed to the
scene. An adviser to Ukraine's interior ministry alleged that
pro-Russia rebels were responsible, while a leader for the
self-proclaimed Donetsk People's Republic accused Ukrainian forces
of shooting down the plane.
"This is bringing it up to another level," said Frank Ingarra,
head trader at NorthCoast Asset Management. "It's putting people on
edge: is this getting to a red line where this is no longer a
regional conflict anymore?"
Geopolitical events diverted the attention of investors away
from corporate earnings and domestic economic data. A July survey
on manufacturing conditions in the mid-Atlantic region rose to its
highest reading in over three years. Separately, U.S. jobless
claims fell more than expected to 302,000 in the latest week.
One soft spot was U.S. home construction, which fell 9.3% in
June. Housing starts sank last month to 893,000, the weakest
showing since September 2013.
In corporate news, UnitedHealth Group reported
better-than-expected revenue and growth in its public and senior
markets. Shares rose 1.6%.
Morgan Stanley shares fell 0.6% after the bank posted a 97%
surge in second-quarter profit. The firm's wealth-management and
investment-banking businesses helped counter a slump in trading
revenue.
Microsoft rose 1% after disclosing plans to eliminate up to
18,000 jobs over the next year and book a restructuring charge of
$1.1 billion to $1.6 billion.
Write to Chris Dieterich at christopher.dieterich@wsj.com