U.S. Stocks Tumble, Snapping Five-Month Win Streak

New York (July 31)  U.S. stocks ended July with a more than 300-point selloff for the Dow Jones Industrial Average, a swoon that snapped a five-month winning streak for the broader market.

Traders said there was no single catalyst for the stumble, though selling started early.

Investors said an upbeat reading from the labor market sowed concerns about the Federal Reserve possibly raising rates quicker than many investors anticipate. Some pointed to disappointing earnings reports from U.S. companies Thursday, which disrupted what has been a strong season for corporate profits. Others pointed to Argentina's default on some bonds and fresh worries that the euro zone's central bank will need to provide more stimulus.

The Dow Jones Industrial Average fell 317.06 points, or 1.9%, to 16563.30. The S&P 500 shed 39.40 points, or 2%, to 1930.67 and the Nasdaq Composite Index dropped 93.13 points, or 2.1%, to 4369.77.

"There are so many things that are coming to a head simultaneously," said Joe Spinelli, head of Americas single stock trading at  Deutsche Bank.  DBK.XE -2.56%     "Clients are wanting to get into a position to ride out any storm that might pop up."

Trading in individual stocks was heavier than in recent days, but not yet at levels that resembled panic selling, traders said. Wall Street trading desks said they saw a steady flow into index-tracking exchange-traded funds as investors looked to hedge existing positions and shifted to more defensive postures.

"People are taking profits and they are a little nervous," said Ian Winer, director of equity trading at Wedbush Securities.

Nico Marais, head of multi-asset investments and portfolio solutions at Schroder Investment Management, said that he has been trimming some stock positions and raising cash in recent weeks because he has been losing conviction in the endurance of the rally.

"We've been through a period of relative calm in the markets and not seen a selloff for some time," he said. "There's a sense of complacency. This is not the time to be adventurous in the markets."

Weeks of selling of European stocks finally spilled over to the U.S. on Thursday. The Stoxx Europe 600 fell 1.7% in July, and Germany's DAX dropped 4.3%, its biggest monthly loss since May 2012. Financial trouble at Portugal's  Banco Espírito Santo  BES.LB -42.07%     and ramped-up sanctions against Russia clashed with economic signals that suggest the European Central Bank must do more to support growth in the euro zone.

"Europe has been in sell mode," said Jeff Yu, head of single-stock derivatives trading at UBS. "It finally broke through today, but it's been building the last two or three weeks."

In the U.S., declines were broad, with energy stocks leading all 10 of the S&P 500's industry groups lower. Each of the Dow's 30 stocks lost ground.

Some investors pointed to lofty stock valuations.

"Valuations are still attractive, but not as drop-dead gorgeous as they were a year ago," said Milton Ezrati, senior economist and market strategist at Lord, Abbett & Co., an investment manager that oversees about $104 billion. "It's harder to be aggressive when the market is no longer screaming cheap."

Earnings season has been generally positive, but a series of lackluster reports weighed on the market Thursday.

Source:  WSJ