MARKET SNAPSHOT: U.S. Stocks Slide On Worries About Fed Rate Policy

By Anora Mahmudova and Carla Mozee, MarketWatch

Employment cost index rises more than expected

NEW YORK (MarketWatch)--The Dow Jones Industrial Average dropped by triple digits Thursday as investors weighed the implications of robust economic growth and signs of rising wage inflation on Federal Reserve policy.

The main benchmarks were on track to finish the volatile month lower, the first monthly loss in 7 months for the S&P 500 and Dow industrials.

By late morning, the S&P 500 (SPX) was 22 points, or 1.1%, lower at 1,948.77 and was on track to record its first monthly loss since January.

The Dow Jones Industrial Average (DJI) dropped 150 points, or 0.9%, to 16,727.11 and was set to finish the month lower. The Nasdaq Composite (RIXF) lost 60 points, or 1.4%, to 4,410.52 and looked set to close lower over the month.

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Kristina Hooper, U.S. investment strategist at Allianz Global Investors said investors are still assessing the GDP number and the FOMC statement from Wednesday and are nervous ahead of the monthly jobs data.

"Markets love certainty and right now there is too much uncertainty about the Fed's trigger points for raising rates. Instead of looking at one number, such as the unemployment rate, the Fed is looking at a mosaic of data points. Investors are unsure what the Fed would consider a tolerable level of higher inflation," said Hooper.

Weekly jobless claims rose slightly less than expected a week after hitting a 14-year low. However the employment cost index rose due to a larger-than-expected increase in wages. Many analysts watch for wage inflation as a precursor to inflation.

Investors will continue to focus on company earnings. Also in the spotlight is Argentina. Standard & Poor's Ratings Services declared the country in selective default after talks aimed at a settlement between Argentina and holdout creditors fell apart late Wednesday.

"The markets seem to be digesting a lot of the data from [Wednesday] along with the Fed statement. Even though there is a good chance we'll see a revision to what was a surprisingly good Q2 GDP number, this does raise the specter of monetary tightening in less than a year," said Brenda Kelly, chief market strategist at IG, in emailed comments.

Corporate news

Among individual stocks, Avon (AVP) said second-quarter profit fell on lackluster sales, particularly in Latin America and North America. But the beauty product company's CEO Sheri McCoy said management expects improved performance in the second half of the year. Shares rose 4%.

Yum Brands Inc. (YUM) shares skidded 6.2% after the company said illegal activities involving a Chinese supplier have significantly hurt sales over the last couple of weeks.

After the bell, Tesla Motors (TSLA) will release quarterly results.

Shares in Synchrony Financial (SYF) fell 1% after a giant initial public offering was priced at $23, near the low end of expectations. (Read more about the day's notable movers here: http://www.marketwatch.com/story/whole-foods-gopro-and-tesla-are-stocks-to-watch-thursday-2014-07-31.)

In the commodities market, crude-oil futures (CLU4) fell below $100 a barrel on bearish U.S. inventory data, while gold futures (GCQ4) turned lower.

European stocks fell, and Asian equities closed mixed, with Japan's Nikkei Average ending down by 0.2%.

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