Some experts believe the big sell off today was triggered by the chaos in Afghanistan but most believe the inciting incident was a hawkish comment from the Dallas Fed president who commented that tapering should begin in October. So a full week of confidence that the Fed will continue dovish policies went out the window, ironically on the word of a Fed official who has no vote on the matter.  But it created confusion and the market hates confusion. The good news is that a new GDP report shows that in Q2 the economy has now fully recovered from the most abrupt downturn in U.S. history. But when Jackson Hole convenes on Friday, everyone will be watching every word.  Volume remains a little below average at just under 8.3 billion. 

Thu  August 26, 2021  4:36 PM

Wall Street closes lower, ending rally on Afghanistan, Fed concerns

By Stephen Culp

DJ: 35,405.50  +39.24         NAS: 15,041.86  +22.06         S&P: 4,496.19  +9.96       8/25

DJ: 35,213.12  -192.38        NAS: 14,945.81  -96.05          S&P: 4,470.00  -26.19      8/26

NEW YORK, Aug 26 (Reuters) - Wall Street lost ground on Thursday, ending a streak of all-time closing highs on concerns over developments in Afghanistan, while fears of a potential shift in U.S. Federal Reserve policy prompted a broad but shallow sell-off the day before the Jackson Hole Symposium.  All three major U.S. stock indexes ended the session modestly lower, with the S&P and the Nasdaq notching their first down day in six.  The sell-off firmed after hawkish commentary from Dallas Fed President Robert Kaplan and a blast outside the Kabul airport in Afghanistan helped strengthen the risk-off sentiment. read more  Kaplan, who is not currently a voting member of the Federal Open Markets Committee, said he believes the progress of economic recovery warrants tapering of the Fed's asset purchases to commence in October or shortly thereafter.

Kaplan's remarks followed earlier comments from the St. Louis Fed President James Bullard, who said that the central bank is "coalescing" around a plan to begin tapering process. read more  "(Kaplan’s statements) caused a little confusion about the taper timeline, but in my opinion the equity markets are focused on geopolitical issues," said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors in Hunt Valley, Maryland. "There’s a flight to safety during geopolitical tensions."  "I am surprised the market the market hasn’t fallen more, given the fear that it could take focus away from (U.S. President Joe Biden's) domestic agenda," Horneman added.

The economy grew at a slightly faster pace than originally reported in the second quarter, fully recovering its losses from the most abrupt downturn in U.S. history, according to the Commerce Department. But jobless claims, though still on a downward trajectory, ticked higher last week. read more  For an interactive GDP graphic, click here.  The data did little to move the needle with respect to expectations that the Fed is unlikely tip its hand regarding the taper timeline when Chairman Jerome Powell unmutes and delivers his speech at Friday's virtual Jackson Hole Symposium.  "We’re going to see a lot of market participants analyze every word (Powell) uses, but at the end of the day, they will begin tapering," Horneman said. "I’m more concerned about the speed at which they taper. What are they going to start with? That will give us a clearer indication as whether they’re getting more hawkish."

The Dow Jones Industrial Average fell 192.38 points, or 0.54%, to 35,213.12, the S&P 500 lost 26.27 points, or 0.58%, to 4,469.92 and the Nasdaq Composite dropped 96.05 points, or 0.64%, to 14,945.81.  Of the 11 major sectors in the S&P 500, all but real estate ended the session lower, with energy stocks suffering the steepest percentage loss.

Discount retailers Dollar General Corp (DG.N) and Dollar Tree Inc (DLTR.O) tumbled after warning higher transportation costs will hurt their bottom lines. read more  Coty Inc (COTY.N) jumped after the cosmetics firm said it expects to post full-year sales growth for the first time in three years. read more  Salesforce.com Inc (CRM.N) hiked its earnings forecast as the shift to a hybrid work model is expected to fuel strong demand, sending its shares higher. read more  NetApp Inc (NTAP.O) surged as brokerages raised their price targets in the wake of the cloud computing firm's better-than-expected 2022 earnings outlook. 

Declining issues outnumbered advancing ones on the NYSE by a 2.99-to-1 ratio; on Nasdaq, a 1.83-to-1 ratio favored decliners.  The S&P 500 posted 31 new 52-week highs and two new lows; the Nasdaq Composite recorded 82 new highs and 39 new lows.

Volume on U.S. exchanges was 8.27 billion shares, compared with the 8.96 billion average over the last 20 trading days.