U.S. stocks tumbled, driving the Standard & Poor’s 500 Index to the second-biggest loss of the year, and commodities entered a bear market while Treasuries and the dollar rallied as reports on global manufacturing fueled concern the economy is slowing.
The S&P 500 sank 2.2 percent. The S&P GSCI commodities gauge slid to the lowest level since 2010 and is down 22 percent from a February peak. Oil fell below $80 a barrel for the first time in eight months. Ten-year Treasury yields lost four basis points to 1.62 percent. The dollar gained versus all major peers. S&P 500 futures rose 0.3 percent at 6:21 p.m. New York time after bank credit downgrades announced by Moody’s Investors Service matched expectations.
Stocks extended losses as the Federal Reserve Bank of Philadelphia’s economic index signaled the worst contraction in manufacturing in almost a year, while other reports showed existing home sales decreased more than forecast and jobless claims topped estimates. Goldman Sachs Group Inc. analyst Noah Weisberger recommended shorting the S&P 500, or betting on declines of as much as 5.2 percent from yesterday’s close.
“Anticipation of further slowdown in the U.S. and China and an acceleration of the European crisis is spooking investors,” said Jeffrey Sica, the Morristown, New Jersey-based president of SICA Wealth Management who helps oversee $1 billion of assets. “There is overall hopelessness that many measures to boost the global economy have not had the desired effect.”
Earlier reports showed manufacturing in the euro-area shrank at the fastest pace in three years, while China’s factory output was seen falling for an eighth month in what would match the longest contraction since the global financial crisis in 2008-2009.
The MSCI All-Country World Index sank 2 percent today for its worst drop since March 6.
During the regular U.S. trading session, Bank of America Corp. and Citigroup Inc. tumbled at least 3.6 percent to help lead declines in the KBW Bank Index, as all 24 stocks in the gauge retreated. Two people with knowledge of the matter said before the Moody’s announcement that the credit rating firm had told banks downgrades were imminent.
Stock futures gained following the Moody’s announcement, which came after U.S. exchanges closed. None of the cuts were bigger than Moody’s had previously outlined. Morgan Stanley climbed 3.1 percent in after-hours trading. The bank was downgraded two levels by Moody’s rather than the three-grade cut that the ratings firm said was possible.
The slump in the S&P 500 during the regular session threatened to derail a rebound from a five-month low on June 1, when the index tumbled the most since November after Labor Department data showed the weakest U.S. employment growth in a year. Ten-year Treasury yields have increased from a record low of 1.4387 percent reached that same day, while the S&P GSCI commodities gauge has sunk below its eight-month low reached on June 1.
The rebound in stocks, which reached 6.3 percent two days ago, came after a 9.9 percent slump from April 2 through June 1 dragged the index’s valuation to 12.9 times reported profits, the cheapest level since November. Analysts project S&P 500 earnings will decline 0.7 percent in the second quarter, which would mark the first year-of-year decrease since the third quarter of 2009. Alcoa Inc. will mark the unofficial start of the earnings reporting season on July 9.
U.S. stocks dropped yesterday as the Federal Reserve cut its estimates for growth amid a slowdown in hiring and extended its stimulus program known as Operation Twist, disappointing investors anticipating a more aggressive approach. The Fed lowered its central tendency estimate for U.S. 2012 gross domestic product growth to 1.9 percent to 2.4 percent from 2.4 percent to 2.9 percent in April.
“With incremental U.S. monetary policy on hold, the market will need to confront a deteriorating growth picture near term,” Goldman Sachs’s Weisberger wrote in a note to clients, citing the drop in the Philadelphia Fed index to minus 16.6.
Indexes of commodity, technology and financial companies tumbled at least 2.3 percent to lead declines in all 10 of the main industry groups in the S&P 500 today. Canada’s S&P/TSX Composite Index sank 3 percent for its biggest drop since October and the worst performance among 24 developed markets tracked by Bloomberg.
Bed Bath & Beyond Inc. tumbled 17 percent, the most since going public in 1992, after the retailer forecast second-quarter profit below analysts’ estimates. Red Hat Inc. slumped 6.2 percent as billings at the largest seller of the open-source Linux operating system missed some estimates.
An S&P gauge of homebuilders declined 2.6 percent as KB Home and PulteGroup Inc. lost more than 4 percent each. National Association of Realtors’ data showed sales of existing homes dropped 1.5 percent. Jobless claims totaled 387,000 last week, more than the 383,000 estimate in a Bloomberg survey.
Cotton, silver, nickel, oil and gold lost more than 3 percent to lead declines in 21 of 24 commodities tracked by the S&P GSCI Index, which slumped 2.8 percent in its biggest drop of the year. Gold futures fell 3.1 percent, the worst decline in two months, and erased their gain for the year.
The GSCI index surged 92 percent from the end of December 2008 to June 2011 as the Fed kept borrowing costs at a record low and bought $2.3 trillion of debt in two rounds of so-called quantitative easing.
The dollar’s gain was led by rallies of at least 1.5 percent versus the currencies of Brazil, Mexico, Australia and South Africa. The Dollar Index surged 0.9 percent.
The Stoxx Europe 600 Index retreated 0.5 percent, reversing an early gain of as much as 0.3 percent. BHP Billiton Ltd. and Anglo American Plc retreated at least 3 percent to lead metal producers lower. Invensys Plc plunged 14 percent, its largest retreat in five months, after saying it’s no longer in talks with third parties.
There’s still “great uncertainty about future developments in Europe and the slowdown in China,” said Stefan Angele, head of investment management at Swiss & Global Asset Management Ltd. in Zurich, where he helps oversee the equivalent of $84 billion. “The extension of Operation Twist was largely symbolic and will have no significant effect on either economic growth or the markets.”
The Spanish 10-year bond yield lost 14 basis points to 6.61 percent as the nation sold 2.22 billion euros ($2.8 billion) of bonds, more than the maximum target of 2 billion euros.
Italy and Spain, which account for more than a quarter of the euro-area economy, are heading for sovereign bailouts in the next 12 months that will send shock waves through the global economy, Fidelity Investments’s Jamie Stuttard said. Both likely will stumble over debt auctions in the next year, Stuttard, Fidelity’s head of international bond portfolio management in London, said in a telephone interview on June 19.
Spain’s banks would need as much as 62 billion euros ($78 billion) in capital to withstand a worst-case economic scenario, according to two consulting firms hired by the government to conduct stress tests on the lenders.
The yield on France’s five-year bond fell six basis points to 1.45 percent. The government sold 8.43 billion euros in debt, with yields falling in the first bond sale after President Francois Hollande consolidated his position in the country’s parliament. France’s 3.34 billion euros in five-year notes yielded 1.43 percent compared with 1.72 percent on May 16.
The MSCI Emerging Markets Index fell 1.7 percent today, retreating from the highest level since May 14, as benchmark gauges in Brazil and Colombia sank almost 3 percent. The Shanghai Composite Index slumped 1.4 percent. India’s Sensex index rose 0.8 percent as JPMorgan Chase & Co. recommended buying the country’s stocks.