Stocks declined sharply on Thursday, with the Dow halting its record advance and Twitter's market debut drawing the spotlight, as investors reacted to an unexpected rate cut by the European Central Bank and a read on third-quarter U.S. economic growth.
"What's hurting U.S. markets is they have just gone up so much, so a pause is very much to be expected here," said David Kelly, chief market strategist at J.P. Morgan Funds.
A day after ending at a record 15,680.35, the Dow Jones Industrial Average erased its initial 50-point gain after briefly hitting another intraday high, to close 152 points lower.
After rising above its record close of 1,771.95 set last Tuesday, the S&P 500 fell 23 points, with consumer discretionary and consumer staples leading broad declines that included all of its 10 major sectors.
The Nasdaq also erased an initial gain to lose 74 points.
The CBOE Volatility Index (VIX), a gauge of investor uncertainty, rose to within reach of 14.
The dollar gained against other global currencies and Treasury prices rose, pushing the yield on the benchmark 10-year note down 4 basis points, or 1.5 percent, to 2.61 percent.
Oil futures declined 60 cents, or 0.5 percent, to $94.20 a barrel, and gold futures fell $9.30, or 0.7 percent, to $1,308.50 an ounce.
The sell off accelerated during afternoon trading. "I think it's the internals," said Art Cashin, director of floor operations for UBS. "The Nasdaq and Russell are getting creamed." Cashin and others have been pointing to the divergence between the Dow and S&P 500, both hitting highs early Thursday, and the outsized declines in the Russell 2000 and Nasdaq in recent sessions.
The Russell and Nasdaq led the market higher this year, so traders say that is the first place profits were being taken.Like Kelly at J.P. Morgan Funds, other market strategist agreed a pause was to be expected given the market's ongoing climb, which has the S&P 500 up 23 percent for the year. "We've had such a party the last few weeks, one would think we have to take a little bit of a breather," said Bruce McCain, chief investment strategist at Key Private Bank.
Nick Raich, CEO at the Earning Scout, chalked up the market's drop to "day-to-day gyrations and profit taking after yesterday's record move by the Dow."
Twitter opened at $45.10 a share, way above its IPO price of $26 a share. It closed at $44.90 -- a more than 72-percent jump. The stock is trading under the ticker symbol "TWTR."
In an interview on CNBC, Twitter CEO Dick Costolo said investors should not be concerned about the company's current lack of profits, because it's part of a plan to invest for the long term. He also said employees had agreed to an 180-day lockup.
"I feel like I'm back in time in the 90s with a lot of these Internet stocks," said Raich . "They are not trading off earnings, but on speculation of where will they be eventually. Of course I said the same thing about Google when it IPOed, and now it's a money-making machine. Twitter is a great medium, and Facebook might be a great stock over the next five years, but will it be around in 50 years? I think Coca-Cola will be," said Raich.
Stock futures had jumped earlier after the European Central Bank surprised traders by cutting its key interest rate to 0.25 percent in a bid to fend off the potential danger of deflation.
"The surprise cut was just that, a surprise. There were a couple of whispers that it might happen before year end, but I don't think anybody had it on their wish list today," said Chip Cobb, portfolio manager at BMT Management, of the unexpected ECB move.
Separately, U.S. economic reports had gross domestic product expanding 2.8 percent in the third quarter, led by a large increase in inventories, while weekly initial jobless claims fell by 9,000 to 336,000 last week,
Thursday's data comes ahead of non-farm payrolls on Friday. Economists expect to see 125,000 jobs added according to economists polled by Reuters, which would be the second-lowest number of jobs added of 2013 and that the unemployment rate has ticked up to 7.3 percent from 7.2 percent.
The Fed's monetary committee noted last week that it had "decided to await more evidence that progress will be sustained before adjusting the pace of its purchases," a factor that could be determined by the forthcoming jobs report.
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