General Electric Co. and 3M Co. plunged at least 1.4 percent to pace declines among large industrial shares. Financial shares tumbled, as Visa Inc. and American Express Co. slid more than 1.4 percent. The Market Vectors Russia ETF tracking companies from Gazprom OAO to OAO Lukoil dropped 6.9 percent. Yandex NV, a U.S.-listed online search engine operating in Russia, slumped 14 percent. Reynolds American Inc. rallied 4.8 percent after a report said the company might bid for Lorillard Inc.
The Standard & Poor’s 500 Index fell 0.7 percent to 1,845.73 at 4 p.m. in New York. Today’s drop was the biggest since Feb. 3 and erased a gain for the year after the index finished last week at a record. The Dow Jones Industrial Average dropped 153.68 points, or 0.9 percent, to 16,168.03. About 6.9 billion shares traded hands on U.S. exchanges today, 5.4 percent above the three-month average.
“Global markets typically sell off on news of an escalated geopolitical crisis like we’re seeing in Ukraine; how deep it goes depends on the effectiveness of diplomacy,” Frederic Dickson, chief investment strategist who helps oversee $44.5 billion at D.A. Davidson & Co. in Lake Oswego, Oregon, said in a telephone interview. “We’re in a camp that this is not a black swan event that will mark the end of the five year bull market for stocks in the U.S. and globally, but a modest correction event.”
The tensions sent stocks tumbling around the world, with the MSCI All-Country World Index sliding 1.3 percent. Russian stocks had their biggest decline in five years and the Europe Stoxx 600 plunged 2.3 percent, its biggest slide in five weeks. Emerging-market stocks dropped 1.7 percent. Gold soared 2.2 percent and Treasuries rallied.
Ukraine said Russia’s navy ordered two of its ships in Crimea to surrender amid the worst standoff between the West and Russia since the end of the Cold War. A Russian Defense Ministry official denied the claim.
The head of Russia’s Black Sea fleet gave the ships, located near the port of Sevastopol, until 5 a.m. local time tomorrow to give up weapons and capitulate, Oleksiy Kirchkov, deputy commander of the Ternopil, told Ukraine’s Channel 5 by phone.
Western diplomats are seeking to calm tensions in Ukraine, with U.S. Secretary of State John Kerry arriving in Kiev today.
“The Ukraine news is troubling, but there are always global risks and short-term fluctuations because of these risks,” Karyn Cavanaugh, a market strategist at ING U.S.Investment Management in New York, said in a phone interview. Her firm oversees about $200 billion. “I see this being short-term unless it escalates. If we do see some market gyrations and volatility, it could be a buying opportunity.”
The geopolitical tension comes after the S&P 500 rose 4.3 percent in February, the most since October, to end the month at a record 1,859.45. Investors have been speculating that recent weakness in data from housing to jobs was caused by inclement weather and that the Federal Reserve will continue to support the economy.
U.S. equities are set to enter the sixth year of a bull market that started March 9, 2009. Three rounds of stimulus have helped push the S&P 500 up 173 percent from a 12-year low.
Investor concerns of weakness in emerging markets sent the S&P 500 plunging 5.8 percent from Jan. 15 to Feb 3, amid signs that growth was slowing in China and a rout of currencies from the Turkish lira to the Argentine peso as the Fed began to reduce stimulus. Reports today showed two gauges of Chinese manufacturing in February signaled slower growth.
Data in the U.S. today showed manufacturing expanded at a faster pace than projected in February, a sign the industry was beginning to overcome bad weather across much of the country. The Institute for Supply Management’s manufacturing index rose to 53.2 in February from 51.3 a month earlier. Readings above 50 signal expansion.
A separate report indicated consumer spending rose 0.4 percent in January after a 0.1 percent gain the prior month. The median forecast of 76 economists in a Bloomberg survey called for a 0.1 percent rise. Incomes advanced 0.3 percent.
“There are other worries already built into this market,” Todd Salamone, director of research at Schaeffer’s Investment Research in Cincinnati, said by phone. “Whether it’s China or the U.S. slowing down or the Fed, we have had a market that has marched higher amid a lot of scary headlines. The good news for the bulls is that there’s a lot of fear already built into this market as is.”
The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility, jumped 16 percent to 16.02 today, its biggest advance since Feb. 3. Options tied to gains in the VIX reached the highest prices in six years last week, reflecting bets that the calm prevailing in equities for the last year won’t last.
A series of calls that appreciate in tandem with the VIX climbed to the highest level since May 2007 relative to puts last week, according to data compiled by Bloomberg.
“It should be an enormous advantage for investors in stocks to have those wildly fluctuating valuations placed on their holdings,” Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., said in his annual letter to investors last week.
All 10 main groups in the S&P 500 retreated at least 0.2 percent today. Utility and consumer-discretionary stocks fell the most, losing 0.9 percent.
Industrial shares slid 0.7 percent as a group. General Electric lost 1.4 percent to $25.12 and 3M dropped 1.9 percent to $132.21.
Banks and other financial firms tumbled 0.9 percent. American Express sank 1.4 percent to $89.97 while Visa had the steepest slide in the Dow, dropping 2 percent to $221.44.
Yandex, whose market share in Russia is twice that of Google Inc.’s, plunged 14 percent to $32.23. The shares have lost 25 percent this year, compared with a gain of 0.7 percent for a gauge of technology stocks listed on the S&P 500. The Russian ETF dropped 6.9 percent to $22.76, the lowest since August 2009.
Ford Motor Co. slid 1.2 percent to $15.20 after the carmaker said February light-vehicle sales fell 6.1 percent. Analysts had estimated a drop of 5.3 percent.
Airline stocks declined after a report from industry data tracker MasFlight estimated that cancellations caused by severe winter weather from Dec. 1 through Feb. 28 may have cost carriers as much as $500 million. American Airlines Group Inc. tumbled 2.3 percent to $36.10 and Delta Air Lines Inc. dropped 1.9 percent to $32.59.
Newmont Mining Corp. advanced 1.6 percent to $23.63 after gold jumped to a four-month high in New York as investors bought the metal as a haven.
Reynolds American gained 4.8 percent to $53.29 after the Financial Times reported the company hired an investment bank to explore a deal for its rival in cigarette sales. Lorillard jumped 9.3 percent to $53.61.
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