Wall Street slips from record highs as Middle East tensions weigh

Wall Street fell from record highs on Friday after a US air strike in Iraq ratcheted up tensions in the Middle East and a bigger-than-expected contraction in the US manufacturing sector raised concerns of slowing economic growth.

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 US President Donald Trump.

In a further blow to US 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.

S&P 500 bank stocks dropped 1.4 per cent as the news sent benchmark US bond yields > to their lowest since Dec. 12.

 

Shares of airlines also tumbled as oil prices jumped about 3 per cent. American Airlines Group Inc shares dropped 4.4 per cent, while shares of United Airlines Holdings Inc fell 2.0 per cent.

Among the S&P 500's 11 major sectors, only real estate, utilities and consumer staples all considered defensive plays - were trading higher.

Shares of US defense companies jumped on news of the air strike. Northrop Grumman Corp shares climbed 5.3 per cent, and Lockheed Martin Corp shares rose 3.3 per cent. The two provided the biggest boosts to the S&P 500.

"Markets don't like risk, and with the killing of the Iranian general, we may have an elevated level of counterattacks," said Wayne Wicker, chief investment officer of Vantagepoint Investment Advisers in Washington.

Still, the market disturbance could be fleeting, according to Wicker. "We've looked at many types of conflicts over the last 20 years, and they've had much more of a short-term impact," he said.

In a sign of investor jitters on Friday, Wall Street's major indexes extended their fall following a false report of an attack on a US military base in Iraq.

By contrast, release of minutes from the December policy meeting of the Federal Reserve, in which policymakers agreed interest rates would likely stay on hold for "a time," had little impact on US stocks.

The Dow Jones Industrial Average fell 176.25 points, or 0.61 per cent, to 28,692.55, the S&P 500 lost 15.37 points, or 0.47 per cent, to 3,242.48 and the Nasdaq Composite dropped 47.26 points, or 0.52 per cent, to 9,044.93.

Among advancers, Tesla Inc shares hit a record high and were last up 3.5 per cent after the automaker beat estimates for vehicle deliveries in the fourth quarter.

Lamb Weston Holdings Inc shares surged 11.6 per cent, 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 rose 7.7 per cent after Bank of America upgraded its rating on the company's stock.

Declining issues outnumbered advancing ones on the NYSE by a 1.17-to-1 ratio; on Nasdaq, a 1.68-to-1 ratio favored decliners.

The S&P 500 posted 19 new 52-week highs and one new low; the Nasdaq Composite recorded 52 new highs and 12 new lows.