Wall Street's main indexes fell on Thursday as the spread of the COVID-19 Delta variant cast doubts over an economic recovery, while a rout in Chinese tech stocks appeared to have spilled across markets.
Investors globally turned wary of risk. Equities fell and bond prices rallied on worries about Beijing's crackdown on foreign-listed Chinese firms and a sustained global economic recovery.
Stocks that led much of Wall Street's rally this year and those that stand to benefit the most from an economic rebound were under pressure, with cyclical players including financials and materials leading declines among the 11 major S&P 500 sectors.
The S&P 500 banks fell 1.0%, tracking a fall in the 10-year Treasury yield to 1.25%.
US stocks fall amid worries over growth, Delta strain
The FAANG group, whose value rests heavily on future earnings, dropped between 0.7% and 1.3%. It had sent the Nasdaq and S&P 500 to record highs in the previous session.
"Markets are having a bad morning, but this is normal and even healthy given the recent strong run," said Brad McMillan, chief investment officer at Commonwealth Financial Network.
"This looks like a short-term reaction to recent concerns about the Delta variant more than anything else."
Chinese ride-hailing giant Didi Global Inc, which has been at the center of a selloff after its app was taken down by Beijing, fell 5.6%.
Other U.S.-listed Chinese stocks fell, tracking steep losses in China and Hong Kong, with e-commerce giant Alibaba Group Holding Ltd falling 3.7% and internet search engine Baidu Inc down 3.9%.
The two Chinese tech-giants have declined nearly 8% and 10.4% respectively this week, underperforming the broader NYSE FANG+TM index, which has fallen only 2.9% so far in the same period.
In another sign that hurt sentiment for reopening trade, the International Olympic Committee banned spectators at the games set to be held in Tokyo amid a state of emergency that will run throughout the event.
Minutes of the central bank's June meeting released on Wednesday showed the Fed officials felt a U.S. recovery had a long way to go and they may not be ready yet to move on tightening policy.
Indeed, the Labor Department's report showed weekly jobless claims unexpectedly rose to 373,000 for the week ended July 3. Economists polled by Reuters had forecast 350,000 applications for the latest week.
The CBOE Volatility index, a gauge for investor anxiety, earlier jumped to its highest level in over two weeks.
At 12:08 p.m. ET, the Dow Jones Industrial Average was down 219.31 points, or 0.63%, at 34,462.48, the S&P 500 was down 33.39 points, or 0.77%, at 4,324.74 and the Nasdaq Composite was down 121.64 points, or 0.83%, at 14,543.42.
Investors also awaited the start of second-quarter earnings, with big lenders kicking off the season next week.
Declining issues outnumbered advancers for a 2.79-to-1 ratio on the NYSE and for a 2.11-to-1 ratio on the Nasdaq.
The S&P index recorded 14 new 52-week highs and no new low, while the Nasdaq recorded 26 new highs and 142 new lows.