MARKET SNAPSHOT: Geopolitical Fears Sink U.S. Stocks

By Anora Mahmudova and Barbara Kollmeyer, MarketWatch

NEW YORK (MarketWatch) -- U.S. stock investors remained skittish on Tuesday, sending the main benchmarks lower as investors sought havens such as gold and Treasurys.

Perhaps the biggest drag on the market mood was weak European data, which overshadowed better-than-expected Chinese manufacturing numbers. U.S. airstrikes in Syria on Monday evening against extremist fighters, known as the Islamic State, reminded traders of heightened geopolitical risks.

The S&P 500 (SPX) was 5 points, or 0.3%, lower at 1,989.19. The Dow Jones Industrial Average (DJI) shed 42 points, or 0.2%, to 17,131.45. The Nasdaq Composite (RIXF) dropped 10 points, or 0.2%, to 4,517.42.

Chris Gaffney, senior market strategist at EverBank Wealth Management, said mild weakness in stocks is not surprising after weak data from overseas, but remains optimistic in the longer term.

"The environment for stocks remains favorable, as the Fed continues to stay accommodative. Earnings continue to increase and there is lack of alternatives. We expect stocks to finish the year higher," said Gaffney.

"However, we believe the era of rising tides when all stocks were lifted is over and stock selection is more important," he added.

Monday's session on Wall Street was grueling for technology and small-cap stocks, as investors grew nervous about falling commodity prices and concerns about global economic growth. The Nasdaq Composite (RIXF) lost 1.1%, while the Russell 2000 (RUT) dropped 1.5%, in its worst trading day since late July. Read: Russell 2000 'death cross' looms

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In economic data, home prices inched up in July, but growth slowed down, according to data released Tuesday. The U.S. Markit 'flash' Purchasing Managers Index is due at 9:45 a.m. Eastern. And a pair of Federal Reserve officials are due to speak, including Minneapolis Fed President Narayana Kocherlakota, a voting member of the Fed policy committee, and non-voting member of the Fed policy committee Kansas City Fed President Esther George.

Stocks to watch: Alibaba Group Holding Ltd. (BABA) fell 1.8% after a more than 4% drop in the U.S. regular session on Monday.

CF Industries Holdings Inc. (CF) shares rose 3.43% after it confirmed merger talks with Norwegian chemical company Yara International.

Bed Bath & Beyond Inc. (BBBY) will release its second-quarter results after the close of markets.

Google Inc. (GOOG) shares inched lower after the EU's competition chief Joaquín Almunia said the search company must improve its proposed settlement over antitrust concerns or face formal charges.

Other markets: Hong Kong stocks closed lower, as casino stocks sold off. European stocks fell 1.2% on weak data. As equities pulled back, beaten-down gold(GCZ4) and silver (SIZ4) moved up, while the dollar eased some against major crosses.

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