Stocks closed near session lows, off about 2 percent, as investors weighed continued uncertainty about the timing of a rate hike and concerns about global growth headed by slowing in China.
“I think the markets are overly pessimistic,” said Anthony Valeri, investment strategist at LPL Financial. “I think this sentiment is panicking over news from China, the Fed (and) oil at six-year lows.”
The S&P 500 fell into negative territory for the year, off about 1 percent, with consumer discretionary the greatest decliner on the day. Energy is the greatest laggard for the year, down 17 percent.
Stocks extended recent losses, with the major averages falling below their 200-day moving averages.
The Dow Jones industrial average closed more than 350 points lower, with Merck and Disney leading nearly all blue chips lower. The index is off more than 4.5 percent for the year so far.
Bernstein downgraded Disney to “market perform” from “outperform,” saying valuations for media stocks need to be adjusted because of an increased risk premium regarding affiliate fees.
The Nasdaq Composite lost more than 2 percent to near 4,900, with Apple (AAPL) off nearly 2 percent and biotechs falling more than 3 percent. The index is up about 3.5 percent year-to-date.
“I think the oil and the geopolitical problems are the real problems for the market because we’re looking at lower global economic growth, and lower global growth is going to weigh on the U.S. as well,” said Peter Cardillo, chief market economist at Rockwell Global Capital.
Overseas stocks also ended lower. European stocks closed down about 2 percent as concerns about China, the Federal Reserve weighed.
The Shanghai Composite plunged 3.4 percent as investors failed to gain confidence in government support measures.
“Oil’s sliding down, China’s currency is getting hurt. Kazakhstan’s and Vietnam’s currencies (are) all being devalued. The instability in the global marketplace is a great concern here,” said Adam Sarhan, CEO of Sarhan Capital. “What’s getting investors to go out there?”
Kazakhstan’s tenge lost more than a quarter of its value on Thursday after the oil producing central Asian nation, hit by sharp declines in crude prices, introduced a freely floating exchange rate for the currency.
The State Bank of Vietnam (SBV) devalued the dong (VND) by 1 percent against the dollar on Wednesday—its third adjustment so far this year—and simultaneously widened the trading band to 3 percent from 2 percent previously, the second increase in six days.
“The market has really taken a pessimistic stance vis-a-vis the Fed,” said Dave Schiegoleit, a senior portfolio manager with The Private Client Reserve of U.S. Bank in Los Angeles.
“I think we’re hearing comments from people taking a dovish stance that the Fed could cramp the fragile growth we’re seeing,” he said, noting that he expects a rate hike in September. On the hawkish side, “if the Fed holds off then that means the Fed is seeing something the market isn’t.”
Robert Pavlik, chief market strategist at Boston Private Wealth, expects one rate hike this year.
“It’s making people unwind their risk-on trades,” he said.
Longer-end yields declined and gold jumped as investors piled into safe-haven assets.
Pavlik and other analysts also noted low trade volume, declines in oil prices and the lack of bullish catalysts as behind the selloff.
“I think change hits the market. Markets don’t like rapid movement,” said James Meyer, chief investment officer at Tower Bridge Advisors. “I think you have investors, traders… who have made wrong bets and have to unwind. Part of it is momentum and momentum is down.”
He noted some volatility in oil prices as futures contracts expire. The WTI crude contract rolls from September to October after the settle.
Crude oil settled 34 cents higher at $41.14 a barrel after falling below $41 a barrel early Thursday to hit a fresh six-and-a-half-year low. Brent crude fell more than 1 percent to below $47 a barrel.
“We continue to be in lockstep with energy and it’s going to be difficult to get out of that,” said Art Hogan, chief market strategist at Wunderlich Securities.
Uncertainty about the timing of a rate hike remained, as the Fed minutes indicated conditions for liftoff are “approaching” but not present.
Stocks held lower after mixed economic releases continued to indicate modest growth.
Initial claims data came in at 277,000, but remained consistent with an improving labor market trend that could support a rate hike this year.
The U.S. 2-year Treasury note yield (US2Y) held near 0.67 percent, while the 10-year yield (US10Y) traded lower near 2.09 percent.
The U.S. dollar traded lower against major world currencies, with the euro climbing above $1.12.
Existing home sales rose to an eight-year high, while leading indicators declined 0.2 percent in July.
The Philadelphia Fed index for August came in at 8.3. Earlier in the week, the Empire State survey plunged to a 2009 low.
U.S. stocks closed lower on Wednesday after the earlier-than-expected release of the minutes and under pressure from global growth concerns and a plunge in oil prices.
In earnings news, Sears (SHLD) lost an adjusted 67 cents per share for its latest quarter, smaller than the loss of $2.50 estimated by the lone analyst providing an estimate. Profit margins improved at both the Sears and Kmart chains, but same-store sales declined.
Shares of Nortek (NTK) briefly surged nearly 20 percent on a Dow Jones report that United Technologies (UTX) is in talks to acquire the maker of ventilation systems.
Twitter (TWTR) plunged nearly 6 percent to below its IPO price.
Hewlett Packard (HPQ), Gap (GPS), Intuit (INTU), Marvell Tech (MRVL), Ross Stores (ROST), Salesforce.com (CRM) and Fresh Market (TFM) are all due after the bell.
The CBOE Volatility Index (VIX) (.VIX), widely considered the best gauge of fear in the market, traded above 18.
About five stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 571 million and a composite volume of nearly 2.9 billion in afternoon trade.
Written by Evelyn Cheng of CNBC