U.S. stocks tumbled to their lowest levels since mid-August, as investors retreated from risky assets amid growing worries about global growth.
The Dow Jones Industrial Average lost 235 points, or 1.4%, to 16808. The S&P 500 Index shed 27 points, or 1.4%, to 1946 and the Nasdaq Composite Index declined 77 points, or 1.7%, to 4416.
The Russell 2000 small-cap index entered correction territory during Wednesday's session, recently down 10% from its July 3 high.
"Small-caps are what people point to for a growing economy…they're laggards right now, and that's starting to concern more people," said Michael Antonelli, sales trader at brokerage Robert W. Baird.
Stocks started the session lower and the declines accelerated later in the day, after reports on U.S. manufacturing and construction spending fell short of economists' forecasts. Investors piled into U.S. government bonds, sending the 10-year note's yield to the lowest level in nearly a month. In afternoon trade, the 10-year yield fell to 2.405% from 2.509% on Tuesday.
Traders said large fund managers and institutions were selling riskier investments like stocks, and fleeing into the relative safety of government bonds. Many of those investors were initially optimistic about the fourth-quarter outlook for stocks, traders said, but were changing course after weak economic data from the U.S. and Europe. Sectors seen as growth-sensitive posted sharp declines, with materials dropping 2.3% and industrials shedding 1.9%. Utilities stocks, seen as a defensive bet, climbed 0.6%.
"The selling is pretty indiscriminate," said Ian Winer, director of equity trading at Wedbush Securities. "It doesn't seem like anything but an old-fashioned risk reduction, which isn't surprising, given that [investors] were set up for the market to rise."
U.S. stocks have recently hit some turbulence in this year's advance, which left the Dow up 2.8% for the year at of Tuesday's close. U.S. stocks have been propped up by continued corporate earnings growth and low interest rates. But in recent sessions, global stock markets have seen choppier trading, amid weak reports on growth in Europe and Asia, and as the Federal Reserve prepares to wind down its bond-buying program.
On Wednesday, the Institute for Supply Management reported that its manufacturing index for September was 56.6, below forecasts of 58.2. August construction spending slipped 0.8% from the previous month, while a rise of 0.6% was expected.
Eurozone data showed a surprise decline in manufacturing activity in Germany, the region's largest economy, for the first time in 15 months. Germany's DAX Index fell 1%, and the Stoxx Europe 600 index shed 0.8%.
Investors are trying to determine whether the European Central Bank will respond to slowing growth with further stimulus, traders said. The ECB is scheduled to make a monetary-policy announcement Thursday.
"Europe is still mired in this recession, and people are trying to figure out what they're going to do to get out of it," said Wedbush's Mr. Winer. "People want to know that the ECB has a plan."
Sandy Villere III, a portfolio manager at Villere & Co., which manages about $3 billion, expects more bumpy trading from U.S. stocks in coming sessions, but thinks they should recover before the end of the year. He thinks U.S. economic growth looks stronger than growth overseas, so he doesn't expect declines of more than 10%.
"We seem to be on the mend, and they seem to be hurting again," said Mr. Villere. "Ultimately that should be good for stocks, so we'll see how that plays out."
A report on the U.S. labor market was nearly in line with expectations. The private sector added 213,000 jobs in September, according to a report compiled by Automatic Data Processing Inc. and Moody's Analytics. Economists surveyed by The Wall Street Journal had expected an increase of 209,000 jobs. The report is seen as a preview to the closely watched government employment report Friday.
Markets in Hong Kong and mainland China were closed for a holiday.
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Shares of Alibaba Group Holding Ltd. slipped 3%. Early in the session, the stock fell to $86.04, a new low since its initial public offering on Sept. 19. As of Tuesday's close, the stock was down 5.4% from its sharp IPO rally, but remained 31% above its offering price of $68.
In commodity markets, crude-oil futures dropped 0.5% to $90.73 a barrel and gold futures rose 0.3% to $1,214.60 an ounce.
Write to Alexandra Scaggs at alexandra.scaggs@wsj.com
http://online.wsj.com/articles/u-s-stock-futures-slip-1412165697
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