U.S. stocks retreated on Thursday as large-cap names in the technology sector resumed a slide, weighing on the overall market. The Dow, however, pared some of its earlier loss as a handful of heavyweights posted strong gains.
A more hawkish tone from the Federal Reserve on Wednesday continued to contribute to the cautious mood, as did reports that a special counsel was investigating whether President Donald Trump obstructed justice, inserting a new bit of political uncertainty into markets.
The Dow Jones Industrial Average DJIA, -0.07% fell 20 points to 21,354 after closing at a record in the previous session. A rally in Caterpillar Inc. CAT, +1.59% Boeing Co. BA, +1.58% and Procter & Gamble Co. helped to cushion the blue chip index’s slide.
The weakness in the Nasdaq was due to the index’s heavy concentration of technology shares. The sector XLK, -0.45% fell 0.4%, extending its month-to-date decline to 1.7% as some of the group’s biggest names—who had been fueling the overall market’s year-to-date advance—slumped.
“Our view is that it’s a bit of a correction and we are certainly not surprised by the uptick in volatility,” said Eric Wiegand, senior portfolio manager at the Private Client Reserve, U.S. Bank. “We’ve come through a successful earnings season so there is a harvesting of gains and it’s not inconsistent with what’s to be expected.”
Facebook Inc. FB, -0.29% fell 0.5%, while Google parent company Alphabet Inc. GOOGL, -0.83% was off 1.1%. Among other big decliners, Amazon.com Inc. AMZN, -1.28% shed 1.3% and Apple Inc. AAPL, -0.58% was down 0.8%.
“These trades had all become very crowded, and they’re unwinding now. Given how long they’ve been rising, and by how much, I think there’s still a lot of room to go on the downside,” said Aaron Clark, portfolio manager at GW&K Investment Management, which has about $32 billion in assets under management.
On Wednesday afternoon, Fed Chairwoman Janet Yellen and her colleagues raised a key U.S. interest rate and laid out a plan to shrink the central bank’s massive $4.5 trillion balance sheet starting this year. The moves reflect the Fed’s view that a U.S. economic expansion now entering its ninth year no longer needs as much propping up.
The rate increase was fully expected, but “what wasn’t expected was the slightly more hawkish tone to the Fed statement,” said Kathleen Brooks, research director at City Index, in a note on Thursday.
“The Fed didn’t mention anything about the delay to Washington’s expected fiscal stimulus, which suggests that the Fed seems happy to push ahead with monetary policy normalization regardless of what the Trump administration is doing.”
In the latest development out of the capital, the Washington Post and The Wall Street Journal reported that special counsel Robert Mueller is investigating Trump’s conduct. The Journal said Trump’s firing of former FBI Director James Comey is now a subject of Mueller’s probe, which has expanded to include whether Trump obstructed justice. The president, writing on Twitter, called it a “phony story.”
“Gas is being thrown on the fire with these reports,” Clark said. “I don’t think this issue will derail the market, but flare-ups will cause volatility.”
Clark even suggested that if things get worse for Trump, that could be a positive for the market. Wall Street “has already decided that ‘President Pence’ has a nice ring to it,” he said, referring to the vice president. “Any news flow that increases the odds of impeachment or resignation has been taken in stride. The downside scenario isn’t that bad, and could even be better.”
Markets have risen since November’s election, in large part on bets that Trump’s economic agenda would accelerate growth and stoke corporate profits. However, various controversies with his administration have been seen as reducing the odds he can get those initiatives passed, something Clark speculated might be easier with a different president, particularly with the Republican Party controlling both houses of Congress.
Other markets: Oil futures CLN7, -0.74% fell 0.6%, weighed down by data showing that the market remains awash in surplus crude. European stocks SXXP, -0.39% lost ground, while Asian markets closed with losses. A key dollar index DXY, +0.55% traded higher, as gold futures GCQ7, -1.55% settled 1.7% lower.
Economic news: In the latest economic data, jobless claims fell by 8,000 in the latest week, with the monthly average in May falling to a 44-year bottom. Separately, the Philadelphia Fed manufacturing index in June retreated to a reading of 27.6 from 38.8 in May, while the Empire State index rebounded to a reading of 19.8 from negative 1.
Industrial output was flat in May, slightly below expectations for a rise of 0.1%.
—Victor Reklaitis contributed to this report.