Wall Street stocks suffered their worst day since June, slumping in a broad decline as geopolitical uncertainty rose over a possible U.S.-led military strike by the West against Syrian President Bashar al-Assad's forces.
The S&P 500 closed under its 100-day moving average for the first time since June 24, a sign of weak near-term momentum. The day's fall extended recent declines on uncertainty over when the U.S. Federal Reserve will start to slow its stimulative monetary policies.
Odds grew that a strike would occur against al-Assad's forces for a chemical weapons attack against civilians as a number of nations and groups, including Britain, France, Canada and the Arab League, joined Washington in urging a firm response to Assad. Adding to the tension, Russia has supported Assad in Syria's civil war.
"This (stocks) move is as much about the potential spillover effect in the region as it is the potential for a U.S. strike," said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, adding that because geopolitical risk had been "ratcheted up," portfolios would need to be reallocated away from riskier investments like stocks.
"Doing that in a market that was already acting sloppy is cause for further weakness," he said.
Investor nervousness was reflected in a jump of more than 20 percent in the CBOE volatility index over the last two days. The uncertainty also lifted gold to a 15-week peak.
Western sources who attended a meeting in Istanbul between envoys of an alliance opposed to Assad and the Syrian National Coalition said "action to deter further use of chemical weapons by the Assad regime could come as early as in the next few days."
Defense Secretary Chuck Hagel said U.S. military forces in the region are "ready to go" should President Barack Obama order action against Syria.
About 80 percent of companies traded on both the New York Stock Exchange and Nasdaq fell, while all 10 S&P 500 sectors ended down.
Financials and materials were the weakest of the day, with both falling about 2.5 percent. Both groups are closely tied to the pace of economic growth, as are energy shares. However, losses in that group were offset by a 2.8 percent rise in crude oil.
"The potential disruption of Middle East oil supply will not only provide support for commodities, but this is a sector that has underperformed, where valuations are compelling," said Grohowski, who helps oversee $175 billion in client assets in New York.
The Dow Jones industrial average was down 170.33 points, or 1.14 percent, at 14,776.13. The Standard & Poor's 500 Index was down 26.30 points, or 1.59 percent, at 1,630.48. The Nasdaq Composite Index was down 79.05 points, or 2.16 percent, at 3,578.52.
Tuesday marked the biggest daily decline for the S&P since June 20. The benchmark index is now down 2.9 percent in August, putting it on track for its worst month since May 2012.
Goldman Sachs fell 3 percent to $153.23 a day after a source said the company lost tens of millions of dollars when a computer glitch led to a flood of erroneous options trades last week.
Shares of Tiffany & Co. dipped 1 percent to $80.82 after it reported second-quarter sales that missed expectations, although the jeweler raised its full-year profit view on strong results in China.
Goodyear Tire and Rubber Co. rose 2 percent to $19.01 as the S&P's biggest gainer after the company detailed a new master labor contract.
Meanwhile, U.S. regulators have asked Nasdaq OMX Group and NYSE Euronext to come up with a timeline of Thursday's three-hour trading disruption. But the rival exchange operators have been unable to agree on the details, according to several sources familiar with the situation.
Shares of Nasdaq OMX fell 2.3 percent to $29.94 while NYSE Euronext fell 1.2 percent to $41.81.
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