U.S. stocks tumble as Treasuries rise with gold on China data

U.S. stocks slumped, sending the Dow Jones Industrial Average toward its biggest drop since September, and Treasuries rose after a gauge of China’s manufacturing shrank. Emerging-markets stocks fell while gold and natural gas rallied.

The Standard & Poor’s 500 Index (CME:SPH14) fell 1% at 3:34 p.m. in New York, while the Dow dropped 1.1%. The Stoxx Europe 600 Index declined 1% from a six-year high. The MSCI Emerging Markets Index slid 1.3%, with a measure of Chinese shares in Hong Kong tumbling 2.1%. Treasury 10-year (CBOT:ZNH14) yields slumped to a seven-week low. Natural gas jumped 0.9% and gold rose to the highest since November. Turkey intervened to stem the lira’s nine-day slump, the longest run of declines since 2001. Argentina devalued the peso, allowing it to plunge the most in 12 years.

Chinese factory output may contract this month, a preliminary survey from HSBC Holdings Plc and Markit Economics signaled today as the People’s Bank of China added further funds to the financial system to ease a cash shortage. In the U.S., applications for unemployment benefits rose in the latest week and purchases of previously owned homes climbed less than projected in December. Companies from McDonald’s Corp. to Microsoft Corp. were scheduled to report earnings today.

“Any kink in the growth story would give this market a reason to sell off a little bit,” James Dunigan, who helps oversee $118 billion as chief investment officer in Philadelphia at PNC Wealth Management, said by phone. “The Chinese PMI was the start of that, and you get some piling on with the emerging markets. Nobody should be surprised if we get a little pullback of some sort. The overall story is the foundation is still there, the economy is improving.”

Record High

The S&P 500 is down 1.2% for the year while the Dow has tumbled 2.4%, after the S&P 500 jumped 30% to a record last year, the most since 1997. Three rounds of Federal Reserve stimulus helped the benchmark index rise more than 170% from a 12-year low in 2009.

The rally has boosted equity valuations to near the highest level since 2009. The S&P 500 trades at 15.5 times the estimated earnings of its members, more than the five-year average multiple of 14.1, data compiled by Bloomberg show.

Data today showed jobless claims rose by 1,000 to 326,000 in the period ended Jan. 18. The median forecast of 50 economists surveyed by Bloomberg projected 330,000. Purchases of previously owned homes climbed 1% in December, less than projected. The Conference Board’s index, a measure of the outlook for the next three to six months, climbed 0.1% after a revised 1% gain the prior month, the New York- based group said today.

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