Dow tumbles 264 points in biggest stock sell-off in two months
Wall Street saw its biggest stock sell-off in two months Thursday as investors worried over rising geopolitical tensions and the prospect of higher interest rates.
The Dow Jones industrial average sank 264.26 points. The plunge was led by tech stocks, but no single sector or news event accounted for all the losses, analysts said.
“There’s nothing idiosyncratic about today — it’s the totality of everything,” said Carter Braxton Worth, chief market technician at Sterne Agee. “It’s the sorites paradox: Which grain of sand determined that one day there was a heap, and the next day there wasn’t?”
The Dow tumbled 1.5% to 16,945.80 points, falling below 17,000 for the first time in more than a week. The Standard & Poor’s 500 index dropped 1.6%, falling 32.31 points to 1,965.99.
Some analysts suggested that the tipping point may have been the news that a group aligned with Islamic State beheaded a French citizen this week. Others noted that Iraq’s prime minister was warning Thursday of possible terrorist attacks on subway systems in the U.S. and Paris.
A few pointed to the threat of Russian courts seizing foreign assets as a way to protest Western sanctions related to the conflict in Ukraine.
Apple Inc. took some of the blame when its shares fell nearly 4%, or $3.88, to $97.87 after the company rescinded a glitchy new software update for its iPhones on Wednesday. The Cupertino, Calif., consumer electronics giant also had to deal with complaints that its new iPhone 6 is prone to bending after being carried around in pants pockets.
The Nasdaq composite, which is heavily stacked with technology stocks, took a heavy hit with a 1.9% decline, or 88.47 points, to 4,466.75.
Generally, though, market experts said Thursday’s pummeling was a long time coming.
Stocks overall have been moving upward for several years and, considering historical patterns, are due for a correction, analysts said. Large companies such as Netflix, Tesla and Berkshire Hathaway have been doing well, masking the struggles of smaller firms.
“The market looks fine optically, yet under the surface, individual components are not in uptrend anymore,” Worth said. “There’s a saying — a market deteriorates under the cover of strength in blue-chip stocks.”
Investors have also nursed long-simmering worries about the health of the job market and the expected wind-down of the Federal Reserve’s easy-money policies.
The unemployment rate has fluctuated near 6% for the last few months. But many on Wall Street said the national jobless rate doesn’t reflect underemployment or the deteriorating quality of jobs, which are shutting a growing group of Americans out of the middle class.
And although the Fed has been scaling back its bond-buying program, designed to stimulate the economy and hold down interest rates, investors are waiting for officials to signal when they plan to start raising rates. Such a move would put a damper on the ability of businesses to borrow money cheaply.
The weak European economy is also casting a cloud, said Bob Keiser, vice president of S&P Capital IQ’s Global Markets Intelligence unit. But the outlook for the U.S. economy remains strong and any market correction should be relatively brief, he said.
Investors will get further insight Friday, when the Commerce Department releases its final gross domestic product estimate for the second quarter, Keiser said. “The fundamentals look very sound,” he said.
Nicholas Colas, chief market strategist at ConvergEx Group in New York, said investors may have pulled back Thursday in preparation for October. The month tends to be a volatile one for the market as investors anticipate company profits for the coming year, he said.
The rising value of the dollar has investors concerned that American corporations with significant overseas operations could report lower profits as their overseas earnings are converted to dollars, he said.
Low trading volumes on the Rosh Hashana holiday may have also exaggerated the declines, Colas said.
Still, none of the explanations for Thursday’s decline is very satisfying, he said.
“This is one of those situations where there is not a clear headline that everybody points to say ‘This caused the sell-off,’” he said. “Investors just woke up today and said, ‘I am going to take something off the table.’”
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