Image
© Westhavenmanagement.comNew York Stock Exchange
The Dow industrials took their biggest daily tumble in more than seven months Friday, caught up in a two-day selloff in emerging-market stocks and currencies.

Traders said that despite the scope of the decline, fund managers weren't overly urgent in selling. Rather, they pointed to short-term players selling baskets of stocks, such as index futures or exchange-traded funds, as a way to protect against losses elsewhere in their portfolios. Buyers, meanwhile, pulled to the sidelines, content to wait before putting money to work.

The Dow Jones Industrial Average slid 318.24 points, or 2%, to 15879.11, a five-week low. For the week, the benchmark fell 3.5%.

The S&P 500 index dropped 38.17 points, or 2.1%, to 1790.29. The Nasdaq Composite Index shed 90.70 points, or 2.2%, to 4128.17.

"There's a lack of buyers supporting the market and incremental sellers who are de-risking on the back of the macro developments," said Doug Crofton, head of U.S. cash equity trading at Bank of America Merrill Lynch. "I don't think the market was positioned for the recent events."

"We're not seeing people throw in the towel," or selling indiscriminately in a rush to get out of the market, he added.

Even with Friday's declines, the S&P 500 is up 20% from a year ago and 3% off its Jan. 15 all-time closing high.

Concerns about China's economy, global central-bank stimulus and U.S. corporate earnings led to selling in risky assets this past week. The degree of volatility in global stocks, bonds and currencies caught some investors wrong-footed, said Ian Winer, director of equity trading at Los Angeles brokerage Wedbush Securities.

"We're seeing funds thinking, 'there's clearly some macro risk I hadn't considered,'" Mr. Winer said. "You'll sell stocks to bring down your overall exposure, so you'll protect yourself to play another day. We're seeing funds do that."

In emerging markets, the Turkish lira slumped 1.9% against the dollar to another record low. The South African rand dropped 1% versus the greenback. The iShares MSCI Emerging Markets exchange-traded fund, which tracks an index of emerging-market stocks, slipped 2.6% on nearly double its average daily trading volume.

Assets seen as havens continued to benefit. Gold futures gained 0.2% to settle at $1,264.50 an ounce, a two-month high. Buying in bonds pushed the 10-year Treasury note's yield down to 2.737%, below its seven-week low of 2.774% on Thursday. Treasury yields fall as prices rise.

The Chicago Board Options Exchange Volatility Index, a measure of options traders' expectations for big stock-market swings, jumped 29%, its biggest one-day increase since April.

Stock-market volatility spent much of last year at historically levels, as the market rose in nearly uninterrupted fashion. As a result, some hedge-fund managers spent last year buying at the first sign of weakness, assuming the market's advance would continue, said David Seaburg, head of sales trading at New York brokerage Cowen & Co. But the playbook has changed so far in 2014.

"The response I'm getting from people who generally were 'buy on the dip'-type accounts is we're looking at things a little differently now," Mr. Seaburg said.

In the corporate arena, Microsoft rose after reporting better-than-expected quarterly earnings and revenue, helped by strong demand for the company's new Xbox videogame console.

Kansas City Southern tumbled after the railroad operator reported a smaller-than-expected increase in fourth-quarter earnings.

In Europe, the Stoxx Europe 600 dropped 2.4%, adding to Thursday's 1% slide.

Asian markets got the selloff going again on Friday, highlighted by the 1.9% tumble in Japan's Nikkei Stock Average. Hong Kong's Hang Seng slumped 1.3%, while China's Shanghai Composite bucked the trend by rising 0.6%.

There were no major economic data scheduled for release in the U.S.