NEW YORK (Reuters) – Wall Street’s major indexes fell from record highs on Friday after a U.S. air strike in Iraq ratcheted up tensions in the Middle East and a bigger-than-expected contraction in the U.S. manufacturing sector raised concerns of slowing economic growth.
Friday’s decline put the benchmark S&P 500 in the red for the week, snapping a five-week winning streak for the index.
Demand for safe-haven assets soared as Iran vowed revenge for the killing of Qassem Soleimani, head of its elite Quds Force, in an air strike authorized by U.S. President Donald Trump.
In a further blow to U.S. market sentiment, data from the Institute for Supply Management showed that U.S. factory activity contracted in December by the most in more than a decade.
“There was a reinforcement of weak manufacturing activity and then you had the geopolitical spark,” said Michael Antonelli, market strategist at Robert W. Baird in Milwaukee. “That’s on top of the sentiment that the market has been overbought.”
S&P 500 bank stocks .SPXBK dropped 1.6% as the news sent benchmark U.S. bond yields US10YT=RR to their lowest since Dec. 12.
Among the S&P 500’s 11 major sectors, only real estate .SPLRCR and utilities .SPLRCU – both considered defensive plays – ended higher.
In a sign of investor jitters, U.S. stocks extended their fall following a false report of an attack on a U.S. military base in Iraq.
Shares of U.S. defense companies jumped on news of the air strike that killed Soleimani. Northrop Grumman Corp (NOC.N) shares climbed 5.4% and Lockheed Martin Corp (LMT.N) shares rose 3.6%. The two provided the biggest boosts to the S&P 500.
The market disturbance following the strike could be fleeting, said Wayne Wicker, chief investment officer of Vantagepoint Investment Advisers in Washington.
“We’ve looked at many types of conflicts over the last 20 years, and they’ve had much more of a short-term impact,” Wicker said.
The Dow Jones Industrial Average .DJI fell 233.92 points, or 0.81%, to 28,634.88. The S&P 500 .SPX lost 23 points, or 0.71%, to 3,234.85. The Nasdaq Composite .IXIC dropped 71.42 points, or 0.79%, to 9,020.77.
For the week, the Dow dipped 0.04%, the S&P 500 fell 0.17%, and the Nasdaq rose 0.16%.
Among advancers, Tesla Inc (TSLA.O) shares hit a record high and ended up 3.0% after the automaker beat estimates for vehicle deliveries in the fourth quarter.
Lamb Weston Holdings Inc (LW.N) shares surged 11.3%, the biggest percentage gain on the S&P 500, after the frozen foods supplier’s quarterly results surpassed estimates.
Shares of retailer L Brands Inc (LB.N) rose 7.8% after Bank of America upgraded its rating on the company’s stock.
Declining issues outnumbered advancing ones on the NYSE by a 1.14-to-1 ratio. On Nasdaq, a 1.71-to-1 ratio favored decliners.
The S&P 500 posted 22 new 52-week highs and one new low. The Nasdaq Composite recorded 60 new highs and 15 new lows.
Volume on U.S. exchanges was 7.47 billion shares, compared to the 6.87 billion average for the full session over the last 20 trading days.
Reporting by April Joyner; Additional reporting by Manas Mishra and Medha Singh in Bengaluru; Editing by Anil D’Silva, Shounak Dasgupta, Bill Berkrot and Will Dunham