June 1 (Bloomberg) -- Stocks sank, dragging the Standard & Poor’s 500 Index to its worst loss since August, and Treasuries rallied as slower growth in jobs and manufacturing fueled concern the economy is faltering. The Dollar Index erased losses, and commodities fell.
The S&P 500 plunged 2.3 percent, the Stoxx Europe 600 Index slid 1 percent and Brazil’s Bovespa retreated 1.9 percent as of 4:15 p.m. in New York. Ten-year Treasury note yields dropped below 3 percent for the first time since December and the Dollar Index rose 0.3 percent after sinking 0.4 percent earlier. The Swiss franc snapped a two-day drop against the euro. The S&P GSCI Index of commodities tumbled 1.5 percent.
U.S. equities halted their longest streak of gains in a month after companies added 38,000 workers to payrolls in May, according to figures from ADP Employer Services, less than one-quarter of the median growth forecast by economists. Stocks extended losses after the Institute for Supply Management’s factory index showed U.S. manufacturing expanded at the slowest pace since September 2009.
“It’s going to be pretty rocky,” said Burt White, who helps oversee $284 billion as chief investment officer at LPL Financial Corp. in Boston. “The bond market is in full-on pessimistic mode. We still think that this ultimately will be only a soft spot. The question is how long? It will be risk-off until this soft spot is confirmed.”
Financial firms, industrial companies and raw-material producers fell at least 3 percent to lead declines in all 10 industry groups in the S&P 500. Caterpillar Inc., Alcoa Inc. and Bank of America Corp. fell 4.3 percent or more for the biggest losses in the Dow Jones Industrial Average. The Russell 2000 Index of small U.S. companies slumped 3.2 percent, the most since August, while the Dow Jones Transportation Average retreated 3.4 percent.
The ISM’s factory index fell to 53.5 in May from 60.4 the prior month. Economists projected the gauge would drop to 57.1, according to the median forecast in a Bloomberg News survey. Estimates of the 83 economists polled ranged from 53 to 60.
The S&P 500 has fallen 3.6 percent from an almost three-year high at the end of April, and Treasuries have rallied, as economic data trailed economists’ estimates and investors prepared for the Federal Reserve to complete its $600 billion bond-purchase program by the end of this month. Citigroup Inc.’s U.S. Economic Surprise Index, which tracks the rate at which data is beating or missing estimates, turned negative in May and has since fallen to the lowest level since January 2009.
Labor Department data on June 3 will probably show a projected 180,000 gain in payrolls following a 244,000 April increase, according to a Bloomberg survey.
The recent lower-than-forecast economic data has caused some investors to speculate that the Fed will plan a third round of so-called quantitative easing after its latest program of bond purchases, known on Wall Street as “QE2,” is completed this month.
“We do not want to see QE3,” Brian Belski, Oppenheimer & Co.’s New York-based chief investment strategist, said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “QE3 is a short-term event, which will cause the market to go higher because investors over the last 10 years have become so reliant on cheap money and low interest rates. We think that only prolongs the inevitable when the Fed has to eventually sell these securities that they have been buying.”
Dollar Does Best
The dollar beat stocks, bonds and commodities for the best performance in May. The Dollar Index climbed 2.3 percent in the month, while the MSCI All-Country World Index of equities fell 2.5 percent, the S&P GSCI Index of commodities sank almost 7 percent in the month and bonds of all types returned 1.1 percent on average.
Crude oil slid 2.4 percent, the most in three weeks, to $100.29 a barrel in New York. All but four of the 24 commodities tracked by the S&P GSCI Index retreated. Silver, coffee, sugar and wheat lost at least 2.9 percent for the biggest declines.
The Stoxx 600 retreated for the second day this week. Banca Monte dei Paschi SpA sank 7.6 percent, as the Italian lender’s controlling shareholder sold 450 million shares on behalf of Fondazione Monte dei Paschi di Siena, a term sheet for the deal showed.
The difference in yield between Greek 10-year bonds and benchmark German bunds increased 15 basis points to 13.17 percent. Greece’s next aid package may include incentives for bondholders to keep lending without triggering a downgrade that would roil Europe’s banking system, two people with knowledge of the talks said. So-called negative incentives are also under consideration, such as cutting off old Greek bonds from eligibility for use as collateral with the European Central Bank, the people said.
The franc strengthened against all 16 of its major counterparts, gaining 1.7 percent versus the euro, after retail sales rose in April at the fastest rate for two years, boosting speculation the Swiss National Bank will increase borrowing costs. Britain’s pound weakened against 10 of its 16 major peers after a manufacturing index fell to a 20-month low and U.K. mortgage approvals dropped to the least in four months.
The MSCI Emerging Markets Index fell 0.3 percent, breaking a four-day winning streak. Taiwan’s Taiex Index climbed 0.6 percent. The Bombay Stock Exchange Sensitive Index rose 0.6 percent after Morgan Stanley predicted it will rebound 19 percent this year. Thailand’s SET Index slid 0.8 percent before the central bank raised its benchmark one-day bond repurchase rate for the fourth time this year.
To contact the editor responsible for this story: Nick Baker at Nbaker7@bloomberg.net