While you were sleeping: Trump unsettles Wall St

Traders work on the floor of the New York Stock Exchange. Photo / Getty Images

Wall Street dropped, while US Treasuries advanced, amid concern that US President Donald Trump has derailed his chances of implementing the policies that had been seen as good for business and economic growth.

Rumours that former Goldman Sachs President Gary Cohn would resign as head of the national economic council worried investors.

Also weighing on markets was a terror attack in Barcelona that killed 13 people and wounded dozens.

In 3.19pm trading in New York, the Dow Jones Industrial Average dropped 1 per cent, wile the Nasdaq Composite Index shed 1.7 per cent. In 3.03pm trading, the Standard & Poor's 500 Index slid 1.2 per cent.

Wall Street's fear gauge - the CBOE Volatility Index - soared 26 per cent to 14.77.

"Certainly the Cohn stuff started it and while there isn't much out there yet about what's happening now in Barcelona, it's also adding to it," Robert Parks, managing director in equity derivatives at RJ O'Brien and Associates, told Bloomberg.

"And in the background is Donald Trump and everything negative that's swirling around him. Is he going to be able to get anything done that was expected?" Parks noted.

All stocks in the Dow traded lower in late afternoon, led by declines in shares of Cisco and those of Wal-Mart, down 4.4 per cent and 1.8 per cent respectively.

Cisco shares dropped after the company posted revenue that missed the mark and gave an outlook that also disappointed.

Wal-Mart shares fell after the retailer offered an earnings outlook for the third quarter that fell short of expectations.

Wal-Mart predicted adjusted earnings per share of between 90 US cents and 98 US cents for the third quarter. Analysts had projected a number at the top of that range, according to Bloomberg.

"Retail is constantly evolving and it's critical that we move even faster as the customer and competitive landscape continue to change," Doug McMillon, Wal-Mart's CEO, said on an earnings call.

In the latest US economic data, a Labour Department showed that initial claims for state unemployment benefits fell 12,000 to a seasonally adjusted 232,000 for the week ended August 12. Meanwhile, a Federal Reserve report showed manufacturing output fell 0.1 per cent in July.

"Today's data were constructive towards our expectation of another robust rise in real GDP growth in the third quarter and further labour market improvement," Dana Peterson, an economist at Citigroup in New York, told Reuters. "The readings support our conjecture that low inflation notwithstanding, the conditions for the Fed to announce balance sheet unwind are ripe."

In Europe, the Stoxx 600 Index ended the session with a 0.6 per cent slide from the previous close. Germany's DAX Index fell 0.5 per cent, the UK's FTSE 100 Index declined 0.6 per cent, while France's CAC 40 Index also retreated 0.6 per cent.