U.S. stocks fell, sending the Russell 2000 Index down more than 10 percent from its March high, as a selloff in small-cap and Internet stocks spread to the broader market.
Wal-Mart Stores Inc. fell 2.5 percent after it forecast profit that missed estimates. Lincoln National Corp. sank 5.7 percent, leading insurers lower as 10-year Treasury yields tumbled. General Motors Co. dropped 2.2 percent after recalling another 2.7 million vehicles. Cisco Systems Inc. advanced 6.4 percent after a revenue forecast that beat analysts’ projections.
The Standard & Poor’s 500 Index lost 1.2 percent to 1,866.18 at 1:21 p.m. in New York. The Dow Jones Industrial Average declined 189.88 points, or 1.1 percent, to 16,424.09. Both gauges headed for their worst day since April 10. The Russell 2000 Index of small companies sank 1. 5 percent, bringing its slide from a March high to 10 percent, commonly defined as a correction.
“The primary sentiment right now is cautious and nervous,” Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said in a phone interview. “It’s more a matter of capital preservation than it is trying to generate returns. This is a time of caution. More people are looking to make sales and raise cash than they are to put cash to work on the weakness.”
The S&P 500 has dropped 1.7 percent since closing at an all-time high of 1,897.45 on May 13. The gauge advanced as much as 4.5 percent from a low on April 11 amid optimism about the economy and Federal Reserve stimulus.
Investors resumed selling Internet and small-cap shares after gains earlier in the week. The Russell 2000 has lost 4.1 percent in the past three days following a 2.4 percent rally on May 12. The gauge retreated 1.9 percent last week to close below its average price for the past 200 days for the first time since 2012.
The Dow Jones Internet Index lost 1.4 percent for a third day of declines. The gauge has plunged 18 percent from a 13-year high in March.
Economic data today showed industrial production in the U.S. unexpectedly declined in April, held back by a plunge in utilities as temperatures warmed and a broad-based decrease in manufacturing. Manufacturing, which makes up 75 percent of total production, decreased 0.4 percent.
That contrasted with a higher-than-forecast reading on the Fed Bank of New York’s gauge of regional manufacturing, which climbed to 19.01 this month, from 1.29 in April.
Labor Department data showed the fewest Americans in seven years filed applications for unemployment benefits last week, while a separate report indicated the cost of living in the U.S. rose in April by the most in almost a year.
“There’s not really any great news here,” Randy Bateman, who oversees $3.5 billion as chief investment officer of Huntington Asset Advisors in Columbus, Ohio, said by phone. “It’s just a slower growing period. Unless we see something that will really drive investor enthusiasm, it’ll be a trading- range market.”
Fed Chair Janet Yellen said last week that the world’s biggest economy still requires a strong dose of stimulus. While data show “solid growth” in the second quarter, “many Americans who want a job are still unemployed” and inflation remains low, she said. Yellen will address the U.S. Chamber of Commerce after the market closes today.
Three rounds of monetary stimulus have helped fuel economic growth, sending the S&P 500 surging as much as 180 percent from its 2009 low.
David Tepper, founder of $20 billion hedge-fund firm Appaloosa Management LP, said he’s nervous about markets as the U.S. economy isn’t growing fast enough amid complacency by the Federal Reserve.
“The market is kind of dangerous in a way,” Tepper said yesterday at the SkyBridge Alternatives Conference in Las Vegas. “I think it’s nervous time,” he said, adding that markets may “grind higher” in the near term.
Tepper, 56, who started his Short Hills, New Jersey-based firm in 1993, said he’s more worried about deflation than inflation and that this is the time to preserve money.
The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility known as the VIX, jumped 10 percent to 13.44. The gauge had fallen 43 percent through yesterday since reaching a two-year high on Feb. 3.
All of the 10 main S&P 500 groups retreated today, with commodity and financial shares dropping at least 1.5 percent to base declines.
Wal-Mart sank 2.5 percent to $76.75. The world’s largest retailer forecast second-quarter profit that missed analysts’ estimates as the company copes with slow sales in the U.S., especially at its Sam’s Club warehouse stores. First-quarter profit fell to $1.10 a share, with poor weather shaving off 3 cents a share. That trailed the $1.15-a-share estimate of analysts surveyed by Bloomberg.
Retailers sank 1.7 percent as a group, with Kohl’s Corp. decreasing 2.5 percent to $52.68. The department-store operator reported sales and profit estimates that fell short of analysts’s forecasts.
Lincoln National dropped 5.7 percent to $47.12 for its biggest slide in a year, pacing losses among insurers. The group sank 1.8 percent for the steepest decline among 24 industries in the S&P 500.
The yield on 10-year Treasury notes slid five basis points to 2.49 percent. Life insurers invest in bonds to back future obligations and generate profits. MetLife Inc., the largest U.S. life insurer, sank 3.3 percent to $49.25.
General Motors dropped 2.2 percent to $34.16. The automaker announced that it is recalling an additional 2.7 million vehicles, including models with faulty brake lights that have led to hundreds of complaints, pushing the total number to 11.1 million.
Cisco rallied 6.4 percent to $24.26. The world’s largest network-equipment maker said revenue in the quarter ending July will be $12 billion to $12.3 billion. Analysts on average had predicted $11.8 billion. Cisco forecast profit excluding stock- based compensation, amortization and other items of as much as 53 cents a share. That exceeded the 51-cent average of analyst estimates compiled by Bloomberg.