U.S. stocks fell, sending the Standard & Poor’s 500 Index to a nine-week low, after Chinese equities entered a bear market amid concern a cash crunch will hurt growth and as investors weighed the impact of a possible reduction in the Federal Reserve’s monetary stimulus.
Bank of America Corp. and Citigroup Inc. slid 2.9% as banks tumbled. Apple Inc. fell 2.2% as Jefferies & Co. lowered the stock’s price target amid a glut of unsold iPhones. Allergan Inc. sank 11% amid analyst downgrades. Vanguard Health Systems Inc. surged 68% after agreeing to be bought by Tenet Healthcare Corp. for about $1.8 billion.
The S&P 500 fell 1% to 1,576.60 at 3:50 p.m. in New York. The index trimmed an early drop of 2% after Fed Bank of Dallas President Richard Fisher said investors shouldn’t overreact to plans to slow bond purchases. The Dow Jones Industrial Average slipped 106.13 points, or 0.7%, to 14,715.16. Trading in S&P 500 stocks was 37% above the 30-day average during this time of day.
“Fisher’s comments seemed to dial back some of the negative rhetoric that people had in terms of Chairman Bernanke’s comments last week,” Michael James, a managing director of equity trading at Wedbush Securities Inc. in Los Angeles, said in a phone interview. “This remains a trader and sentiment-driven market that’s susceptible to swings in either direction at the drop of hat.”
The S&P 500 sank 2.1% last week, the most since April 19, after the Fed Chairman Ben S. Bernanke said the bank may start paring stimulus measures as soon as September if the economy improves in line with its forecasts. The stimulus has helped fuel a rally in stocks worldwide, with the benchmark U.S. index surging 133% from its March 2009 low.
Investors behaved like “feral hogs” after the Fed’s comments June 19, Fisher said in an interview with the Financial Times published today on its website. He reiterated in a speech in London today his support for reduced bond buying this year if the economy makes the kind of progress officials are currently expecting.
Economic data this week could add to the case for the Fed to slow purchases. Reports tomorrow may show U.S. durable-goods orders rose and house prices continued to recover, according to Bloomberg surveys of economists. Data last week showed sales of previously owned homes climbed in May to the highest level in more than three years and manufacturing improved in June.
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.
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.
The Chicago Board Options Exchange Volatility Index jumped 10% to 18.9 for the week. Even after the gauge of options prices on the S&P 500 increased 67% since March, it would have to rise 134% more to reach its average high of 44 from 2009 to 2012, according to data compiled by Bloomberg. VIX futures expiring in six months trade only 10% higher than the index. The gauge added 4.4% to 19.74 today.
Eight of the 10 S&P 500 main industries retreated as financial, industrial and materials shares tumbled more than 1.4%. Bank of America dropped 2.9% to $12.33. Citigroup slipped 2.9% to $45.53.
Metal and coal producers retreated amid growing concern over the economic sustainability in China, the world’s largest consumer of commodities from iron ore to coal. Declines accelerated after the U.S. Supreme Court agreed to consider reviving an Environmental Protection Agency rule that would curb emissions from coal-fired power plants, in a clash over the Obama administration’s biggest air-quality effort.
Cliffs Natural Resources Inc., the largest U.S. iron-ore producer, declined 7.6% to $15.88. Alpha Natural Resources Inc., the biggest U.S. supplier of metallurgical coal, declined 7.9% to a record $5.06 and Peabody Energy Corp. slipped 7.2% to $14.85.
Apple dropped 2.2% to $404.46, the fifth straight decline for the stock. A glut of unsold iPhones prompted Jefferies & Co. analyst Peter Misek to lower its target price to $405 from $420. Apple shares have fallen 24% this year.
Allergan plunged 11% to $82.10. Deutsche Bank AG downgraded the maker of the Botox wrinkle treatment to hold from buy and Leerink Swann LLC trimmed its recommendation to market perform from outperform.
Vanguard Health Systems jumped 68% to $20.79. Tenet will pay $21 a share in cash for the Nashville, Tennessee-based hospital operator and will assume $2.5 billion of Vanguard debt, the companies said in a joint statement. Tenet advanced 5.2% to $44.01 for the biggest gain in the S&P 500.
High-yielding stocks performed best, as Treasury yields slipped from the 22-month high. Utilities and consumer-staple companies added 0.5% and 0.1%, respectively. Phone companies, which yield 4.5% for the most among 10 S&P 500 industries, fell less than 0.1%, trimming an earlier 1.5% decline.