S&P 500 Falls Most Since November as Chinese Growth Slows

U.S. Stocks Drop as Chinese Growth Slows
Following disappointing news on economic growth in China, stocks fell sharply Monday morning with the Dow Jones industrial average down 95 points in morning trading. Photographer: Spencer Platt/Getty Images

U.S. stocks tumbled, sending the Standard & Poor’s 500 Index to its biggest drop of the year as a gauge of market volatility jumped the most in 20 months, after China’s economy grew at a slower pace than forecast.

Energy and raw-material companies fell the most among 10 S&P 500 groups. Chevron Corp. and Exxon Mobil Corp. both lost 2.8 percent. Freeport-McMoRan Copper & Gold Inc., the largest publicly traded copper producer, and Newmont Mining Corp. tumbled more than 6.7 percent as commodities slumped to a nine-month low. Sprint Nextel Corp. surged 14 percent after Dish Network Corp. offered to buy the company for $25.5 billion.

The S&P 500 dropped 2.3 percent to 1,552.36 in New York, the biggest decline since Nov. 7. The index has lost 2.6 percent since April 11. The Dow Jones Industrial Average erased 265.86 points, or 1.8 percent, to 14,599.20. The Russell 2000 Index, which is made up of smaller companies, retreated 3.8 percent, the most in 17 months. About 8.5 billion shares traded on U.S. exchanges today, 33 percent higher than the three-month average.

“The weaker-than-expected China data threw some cold water on the global growth story,” Walter ‘Bucky’ Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama, said by telephone. “There’s been a lot of concern of what the growth trajectory of China would be. Most market watchers have dismissed a hard landing scenario but if the growth rate is below what the current expectations are, that’s a drag on global growth.”

Commodities Tumble

Stocks extended losses as explosions rocked the finish line area of the Boston Marathon, while almost all of the decline came before the incident.

The S&P GSCI gauge of 24 commodities sank to the lowest level since July. Gold tumbled the most since 1980 and silver plunged 11 percent. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, soared 43 percent for the biggest increase since August 2011, to 17.27. The gauge, known as the VIX, pared its loss for the year to 4.2 percent after reaching its lowest level since February 2007 last month.

China’s gross domestic product rose 7.7 in the first quarter from a year earlier, the National Bureau of Statistics said in Beijing today. That compared with the 8 percent median forecast in a Bloomberg survey of economists and 7.9 percent growth in the fourth quarter. Separate reports showed March industrial production rose less than estimated while retail-sales growth matched forecasts.

Root Causes

Global equities also fell today as European Central Bank President Mario Draghi said monetary policy can’t address the root causes of the sovereign debt crisis and it’s up to governments to enact structural reforms.

In the U.S., data today showed manufacturing in the New York region expanded less than projected in April as orders cooled and sales stagnated. The Federal Reserve Bank of New York’s general economic index dropped to 3.1 this month from 9.2 in March. The median projection of 47 economists surveyed by Bloomberg was 7.

U.S. equities rallied last week, sending the S&P 500 up 2.3 percent, amid optimism that global stimulus efforts and corporate earnings growth will continue to power the world’s largest economy.

Profits at S&P 500 companies are forecast to drop 1.4 percent in the first three months of the year, according to analyst estimates compiled by Bloomberg. That would mark the first year-over-year decrease since 2009.

Lower Bar

“A lot of companies have tried to talk down expectations,” Joseph Veranth, chief investment officer at Dana Investment Advisors in Brookfield, Wisconsin, said by phone. The firm manages $3.9 billion. “The bar has been set a little lower and that’s going to help in terms of companies at least beating lowered expectations.”

Investors sold shares of corporations most tied to economic growth today. The Morgan Stanley Cyclical Index of 30 U.S. equities and the 20-stock Dow Jones Transportation Index lost at least 3.8 percent for the biggest declines since November 2011. Lenders also declined, sending the KBW Bank Index down 2.3 percent.

Raw-material and energy companies lost more than 3.9 percent among S&P 500 groups. Caterpillar Inc., the world’s largest maker of construction equipment, tumbled 3.3 percent to $82.27 for the biggest decline in the Dow. Alcoa Inc., the largest U.S. aluminum producer, slid 2.2 percent to $8.04.

Chevron, Exxon

Chevron erased 2.8 percent to $116.57, while Exxon Mobil lost 2.8 percent to $86.49. The price of West Texas Intermediate crude fell to the lowest level this year amid increased concern that demand from China, the world’s second-biggest oil-consuming country, will slow.

Freeport dropped 8.3 percent to $29.27 as Citigroup downgraded the shares to sell from neutral and cut its price estimate by 29 percent to $25. Copper reached the lowest level since October 2011 in New York. Newmont Mining, the largest U.S. gold producer, retreated 6.7 percent to $33.92 as precious metals tumbled. Cliffs Natural Resources Inc., the largest U.S. iron-ore miner, also sank, losing 8.3 percent to $17.61.

All 11 stocks in the S&P Supercomposite Homebuilding Index fell today, as the gauge tumbled 6.3 percent, the most since Feb. 20. The National Association of Home Builders/Wells Fargo index of builder confidence showed an unexpected drop in April for a third month, restrained by rising costs for materials and financing restrictions.

Ryland Group Inc. decreased 6.7 percent to $37.01. M/I Homes Inc. dropped 7 percent to $21.40.

Citigroup Earnings

Citigroup Inc. increased 0.2 percent to $44.87, paring an earlier rally of as much as 3.4 percent. The third-biggest U.S. bank said first-quarter profit rose 30 percent as revenue from fixed-income trading and investment banking exceeded analysts’ estimates. Chief Executive Officer Michael Corbat, 52, who oversaw his first full quarter since replacing Vikram Pandit in October, is firing workers and closing branches as he seeks to make Citigroup more efficient.

Goldman Sachs Group Inc. and Bank of America Corp. are also scheduled to post results this week.

Sprint jumped 14 percent to $7.06 after Dish, Charlie Ergen’s satellite-TV company, challenged a bid by Japan’s Softbank Corp. for the third-largest U.S. wireless carrier. Sprint shareholders would receive $7 a share, consisting of $4.76 in cash and stock representing about 32 percent of the combined company. That means the offer is $17.3 billion cash and $8.2 billion stock. Dish fell 2.3 percent to $36.77.

Life Technologies Corp. rallied 7.5 percent to $73.11. Thermo Fisher Scientific Inc., the second-biggest maker of life-sciences equipment by market value, agreed to buy Life Technologies for about $13.6 billion in an all-cash deal. Life Technologies makes laboratory equipment that help blueprint DNA. Thermo slipped 1.3 percent to $78.58.

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