Disappointing results from retail bellwether Walmart soured US investors on the consumer sector overnight, and rallying oil prices fanned inflation worries.
Walmart shares tumbled 9.2% after the world's largest traditional retailer missed Wall Street expectations for quarterly comparable sales as rising petrol prices had shoppers reining in spending.
The report dragged down the S&P 500 consumer staples and consumer discretionary sectors. These were among the weakest of the benchmark's 11 major industry indexes.
The increase in US crude oil above $US87 compounded concerns about the health of the US consumer, according to Mona Mahajan, head of investment strategy at Edward Jones.
She noted that investors were already anxious after recent weaker-than-expected retail sales and labour market data for July.
"There is some question about how resilient the consumer can be with ongoing elevated gas prices and inflationary pressures," Mahajan said.
Bond yields resume their climb
Wall Street indices had risen on Wednesday after the US Treasury Department said it would spend more than double the expected amount on buying back bonds in a bid to slow a recent surge in yields.
On Thursday, however, stocks declined as yields advanced again.
Yields on the 30-year and 10-year bonds pared gains briefly after US Treasury Secretary Scott Bessent said he may again increase the volume of Treasury bonds the government will repurchase.
But yields resumed their upward trend.
"There are a couple of headwinds that the markets woke up to today," said Mahajan.
"One was a resumption in the increase in bond yields across the curve that came despite yesterday's Treasury move ... it reversed very quickly, within 24 hours."
Where the indices landed
The Dow Jones Industrial Average fell 703.84 points, or 1.32%, to 52,759.21, the S&P 500 lost 66.82 points, or 0.87%, to 7,641.16 and the Nasdaq Composite lost 263.92 points, or 1.00%, to 26,067.17.
The S&P ended about 2.0% below its most recent record close, reached last week, while the Nasdaq was more than 3.0% below its June 2 record finish.
Consumer staples fell 1.93% and was the biggest percentage loser among the S&P 500's major sectors, followed by healthcare, which fell 1.93%.
The S&P 500 consumer discretionary sector sank 1.8%. Megacap Amazon was among its biggest index-point drags.
Big percentage decliners in the sector included Royal Caribbean Group and Carnival Corp, which lost more than 4.0% each as they are sensitive to fuel prices.
Energy and crypto stocks buck the trend
The S&P 500 energy index rose 0.4% as oil gained for the fifth consecutive session due to stalled US-Iran peace talks and Middle East supply disruptions.
Real estate was the only other sector gainer, adding 0.15%.
Meanwhile, cryptocurrency-related companies such as Strategy and exchange operator Coinbase Global rallied more than 7.0% a day after US President Donald Trump called on Congress to pass a crypto bill.
