U.S. stocks extended losses Wednesday, pushing the Dow Jones Industrial Average to its lowest level since mid-April.
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Stocks have pulled back in recent sessions after a rally propelled the Dow within striking distance of its all-time high. A rebound in oil prices and economic data showing the U.S. wasn't in immediate danger of falling into a recession helped spark the advance in stocks since February.
But sentiment around economic growth both in the U.S. and overseas has proved fickle this year, leading to sudden shifts in sectors like banking and transportation stocks.
"We have less conviction in aggregate than we have had in the last several years," said Tom Clarke, co-manager of William Blair Macro Allocation fund, adding that the level of cash in the portfolio is relatively high. While Mr. Clarke said he expects certain assets, such as European stocks, to rally over a longer period of time because they're undervalued, factors such as the potential for a U.K. exit from the European Union could trump valuations in the next few months, he said.
On Wednesday, the Dow Jones Industrial Average declined 0.6%. The S&P 500 lost 0.6%, and the Nasdaq Composite fell 0.8%.
The Nasdaq Biotechnology index dropped sharply, underscoring a retreat from risk. Meanwhile, shares of utility companies in the S&P 500 rose. Those stocks tend to pay high dividends, which investors seek out in periods of uncertainty.
Bank stocks dropped, with Goldman Sachs Group shares down nearly 2%.
The declines in banking stocks were sparked in part by recent disappointing economic reports, such as private payrolls on Wednesday, new orders for durable goods and new-home sales.
"Not only is every economic data point relevant in its own way, but it's being exacerbated because a couple months of stronger or weaker economic data could also mean the central bank changes direction," said Lowell Yura, head of multiasset solutions at BMO Global Asset Management, which has $217 billion in assets.
Banking shares, which are sensitive to changes in the economic outlook, have swung this year. Falling Treasury yields and little conviction that the Federal Reserve will raise rates any time soon have also dragged on bank stocks in the past few sessions.
"For financials, you can only get so much momentum in the space if there's no real picture as to when rates are going to go higher," said R.J. Grant, associate director of equity trading at KBW Inc.
The yield on the 10-year Treasury note fell to 1.783% from 1.800% on Tuesday.
The CBOE Volatility Index, which is based on prices of S&P 500 options that investors tend to rush to when they're fearful of stock declines, rose 6.1% to 16.55 in intraday trade. The index last closed around that level in mid-March.
The dollar rose 0.4% against the yen to Yen107.08, but the U.S. currency has fallen against major currencies so far this year.
"The level of the dollar will be critical to how well the market performs," said Patrick Spencer, vice chairman of equities at Robert W. Baird & Co. While he expects it to remain near its current levels, any meaningful recovery of the dollar would hurt stocks around the world, he added.
A stronger dollar weighed on U.S. corporate profits in recent quarters and could hinder a recent rally in commodities, analysts say.
The Stoxx Europe 600 fell 1.1% for its fourth straight day of losses.
Earlier, Australia's S&P ASX 200 fell into negative territory for the year, Shares in Shanghai were little changed, while markets in Japan were closed for a holiday.
Gold futures fell 1.3% to $1,275.00 an ounce.