The first diagnosis of an Ebola case inside the U.S. added pressure to an already shaky stock market and helped spur a flight to safety in Treasurys, as the deadly virus became the latest macro concern to jar markets obsessed with a decline in global growth.
But traders say the selling was only partly due to macro concerns, and there were some signs of investors shifting out of stocks and buying bonds, despite the fact that stocks are often bought at the start of the quarter.
Art Cashin, director of floor operations at UBS, said technical weakness in the S&P 500 was a factor, with selling accelerating after the index fell the 100-day moving average at 1,955. "There are some signs of geopolitical concerns, more in the morning" he said. "I think things are starting to weigh on themselves."
The latest disappointment on the economy was Wednesday's U.S. ISM manufacturing index which showed a still solid expansion at 56.6 but fell bellow August's reading of 59. That follows softer PMIs overnight in the U.K. and Germany, where there was actually a contraction.
Stocks fell, with the Dow in a more than 200 point decline, off over 1.2 percent at midday, and the S&P 500 down 1 percent. A major negative was another 1.1 percent drop in the Russell 2000, down more than 3 percent for the week but now in official correction territory with a 10 percent decline from its July high.
"There's an allocation trade driving stocks lower. Last month was a pretty brutal one for the small cap sector. There's a little bit more of a growth concern," said one trader. "There's a lot of different things going on. There isn't panic in the market but I do think the market could go lower."
The Dow transports were also pummeled, losing 2.1 percent, as traders sold airline stocks on the theory profits would be hurt by either flight restrictions or a drop in travel if the Ebola virus appears to be spreading beyond West Africa.
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