U.S. Stocks Drop on Syria Tensions

U.S. Stocks Drop on Syria Tensions

Stocks dropped, with blue chips falling to two-month lows, as investors fretted over escalating tensions in Syria. Low volumes exacerbated the effect of the selling, and the drop in the market’s benchmark indexes to fresh lows for the month also soured the market’s technical outlook, traders said.

While much of the chatter among traders Tuesday was about Syria, the sell-off extends a decline from recent weeks blamed on expectations that the Federal Reserve will decide in September to scale back its economic stimulus efforts. Adding to the negative tone Tuesday is increased saber rattling on Capitol Hill over the potential for a political battle over raising of the U.S. federal debt limit.

The Dow DOW -2.82% Jones Industrial Average shed 170.33 points, or 1.1%, to 14776.13. The Dow closed at the lowest level since June 25.

The S&P 500-stock index fell 26.30 points, or 1.6%, to 1630.48 and the Nasdaq Composite Index slid 79.05 points, or 2.2%, to 3578.52.

The S&P 500 has lost 4.6% from its all-time closing high of 1709.67 on Aug. 2, but is still up 14% so far this year.

“People are using Syria as an excuse to sell today,” said Uri Landesman, president of New York-based hedge fund Platinum Partners. “The prospects of the U.S. [using military action] is not making investors particularly sanguine.”

He said light volumes, which are the norm for this time of the year as investors take vacation ahead of the long Labor Day weekend, is exaggerating the impact of fears over Syria.

“Lower volume generally breeds greater volatility,” Mr. Landesman said. “This is not the right week to have a crisis.”

Financials and industrials led all 10 of the S&P 500 sectors lower. Within the Dow, Bank of America BAC -2.62% declined 2.6% and Microsoft MSFT -2.61% fell 2.6% to pace declines in 28 of 30 components.

Ed Lashinski, director of global strategy and execution at RBC Capital Markets’ Futures Group the drop in the S&P 500 below last week’s low also drew in sellers.

“You’re dealing with a thinner market,” Mr. Lashinski said. “The technical backdrop is also becoming more pernicious.”