U.S. stocks fall on China slump, impact of possible stimulus cut

S&P Record

The S&P 500 has fallen 5.4% since a record on May 21, the day before Bernanke first suggested he could cut stimulus if growth appears sustained.

If the index’s slump remains at that level through today’s close, it would end the S&P 500’s longest run in more than six years of going without a retreat of 5%, data compiled by Bloomberg show. The index spent 149 days through June 21 without incurring a 5% loss from a peak, the longest since a 173- day stretch ended Feb. 20, 2007, about eight months before the financial crisis sent the market plunging 57%.

Global stocks fell today, as Chinese equities entered a bear market. The CSI 300 Index of China’s biggest companies tumbled 6.3%, the most since August 2009, taking its loss from this year’s peak to more than 20%. China’s benchmark money-market rates last week climbed to a record as the central bank refrained from using open-market operations to ease a cash squeeze.

Index Streaks

The S&P 500 followed global stocks lower, with the benchmark gauge slipping briefly below its 2007 closing high of 1,565.15. The index surpassed that peak in March, recovering all its losses from the financial crisis. It has fallen 3.2% in June, on course to snap a streak of seven monthly advances. The 10-year Treasury note was little changed after yields earlier spiked to 2.66%, the highest since 2011.

“Investors have been shaken by the concept of rising interest rates and a reduction in stimulus from the Federal Reserve, coupled with the uncertainty regarding effectively how robust the Chinese central banking system is,” Ethan Anderson, senior portfolio manager for Rehmann Financial in Grand Rapids, Michigan, said by phone. His firm manages about $1.5 billion. “We found ourselves in a headline-dependent environment, which is difficult for investors to function.”

While U.S. equity volatility reached a six-month high last week, expected stock swings are less than half as much as peaks in the last four years and traders are pricing in little increase for the rest of the year.

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