Worst day for stocks in nearly two months; Apple hit

Bears out in force; Dow off 250 points
Bears out in force; Dow off 250 points   

U.S. stocks declined on Thursday, with the benchmark indexes recording their worst session since July 31, as Apple tumbled on glitches tied to its new smartphone and as investors considered a proposal in Russia that would let its courts seize foreign assets.

"That would signal a threat from the Kremlin that the Russian-U.S.-Europe conflict economically might take a turn for the worse. They are signaling that unless concessions or negotiations take place, we're prepared to do this," said Jim Russell, senior equity strategist for US Bank Wealth Management.

"It's a turn for the worse, it's an unwelcome signaling from the Kremlin that this, a limitation on capital flows to Russia, is a possibility," Russell said.

Reuters reported the draft law, submitted to Russia's parliament on Wednesday by a pro-Kremlin deputy, would also allow state compensation for those whose assets were taken in foreign jurisdictions. The proposed measure comes after Italy froze luxury properties owned by a longtime friend of President Vladimir Putin, Bloomberg reported.

The CBOE Volatility Index, a measure of investor uncertainty, jumped 17.9 percent to 15.64; the price of gold turned higher and Treasuries rallied.

Apple dropped 3.8 percent as the iPhone maker contended with glitches in the latest version of its operating system. Twitter and Pandora Media led declines among Internet firms. The Russell 2000 Index of smaller companies dropped 1.3 percent.

"It's a sell what is expensive kind of move. Small caps did especially well last year and for the first half of 2014, so it's more of a valuation correction. This sort of internal rotation is a constructive adjustment to getting valuations to a more rational level," Russell said.

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Economic reports had orders for long-lasting goods falling 18.2 percent in August, while applications for unemployment benefits rose by 12,000 to a seasonally adjusted 293,000 last week, less than the 300,000 estimate.

A third number came from financial-data firm Markit, which said its initial services Purchasing Managers Index for September came in at 58.5 versus an expected 59.0.

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After a 264-point drop that pushed it below 17,000, the Dow Jones Industrial Average dropped 264.26 points, or 1.5 percent, to 16,945.80, with JPMorgan Chase leading blue-chip declines that extended to all 30 components.

The S&P 500 lost 32.31 points, or 1.6 percent, to 1,965.99, with technology knocked the hardest among its 10 main industry groups.

The Nasdaq declined 88.47 points, or 1.9 percent, to 4,466.75.

For every share rising, five fell on the New York Stock Exchange, where nearly 737 million shares traded. Composite volume neared 3.3 billion.

The Jewish holiday of Rosh Hashanah was likely keeping a portion of investors sidelined.

The dollar extended its advance versus the currencies of major U.S. trading partners, while dollar-denominated commodities including gold and oil were mixed.

"The stronger U.S. dollar could be one of the items that clips a bit off the top side of third-quarter and fourth-quarter earnings. Combined with a weakening Europe and China, third-quarter and fourth-quarter earnings could be at risk," said Russell.

On the New York Mercantile Exchange, crude-oil futures for November delivery shed 27 cents to $92.53 a barrel and gold futures for December rose $2.40 to $1,221.90 an ounce.

Traders on the floor of the New York Stock Exchange.
Lucas Jackson | Reuters
Traders on the floor of the New York Stock Exchange.

The yield on the 10-year Treasury note used to figure mortgage rates and other consumer loans fell 6 basis points to 2.504 percent.

The 10-year Treasury yield's level remains "conducive for moderately improving earnings expectations," Nick Raich, CEO at The Earnings Scout, wrote in an emailed note.

On Wednesday, stocks rallied, with the S&P 500 and Nasdaq halting a three-day losing run, after an upbeat report on new-home sales and as investors bet on further monetary stimulus from the European Central Bank.

"The market looks tired. We thought yesterday (Wednesday) was a bit of a technical bounce in an oversold market. Today is a continuation of what's probably a short-term to medium-term trend for flat to lower prices. We're setting up for what is likely to be a strong year-end," said Russell at US Bank Wealth Management.

Read MoreStock rally halts 3-day rout for S&P 500, Nasdaq

Parsons: US economy stronger, Europe puzzling
Parsons: US economy stronger, Europe puzzling   

Coming Up This Week:

Friday

8:30 a.m. GDP revision

9:55 a.m. Consumer sentiment