Stocks tumbled, with the benchmark index of global equities sinking the most in 19 months, and bonds fell around the world after the Federal Reserve said it may phase out stimulus and China’s cash crunch worsened. Gold led commodities lower as the dollar rallied for a second day.
The MSCI All-Country World Index lost 3.4 percent and the Standard & Poor’s 500 Index sank 2.5 percent at 4 p.m. in New York for the biggest drop since November 2011 for both. Ten-year Treasury note yields rose six basis points to 2.42 percent and touched 2.47 percent, the highest since August 2011, as rates surged from New Zealand to Germany. The S&P GSCI gauge of raw materials slid 3.1 percent, the most in a year and a half, as gold sank below $1,300 an ounce for the first time since 2010.
Chairman Ben S. Bernanke said the Fed may start reducing bond purchases that have fueled gains in markets globally, and end the program in 2014 should risks to the U.S. economy continue to abate. The Fed will cut its $85 billion in monthly purchases by $20 billion at its September meeting, according to economists in a Bloomberg poll. Data from China indicated manufacturing shrank at a faster pace and the benchmark money-market rate climbed to a record.
“It’s a knee-jerk downward reaction because everyone is afraid that if you’re taking the punch bowl away that must be bad for markets,” Philip Orlando, the New York-based chief equity strategist at Federated Investors, which has about $380 billion in assets under management, said by telephone. “The market is choosing to ignore the good news embedded in the Fed’s comments. All it’s looking at is the reduction of the accommodation.”
About 9.4 billion shares changed hands today in the U.S., the highest volume of the year, according to data compiled by Bloomberg.
The S&P 500 extended yesterday’s 1.4 percent drop and fell to its lowest level since May 1 as all 10 of its main industry groups retreated at least 2.2 percent. The benchmark index extended its decline from its last record on May 21 to 4.9 percent, trimming its 2013 advance to 11 percent and its rally from its bear-market low in 2009 to 135 percent. The Chicago Board Options Exchange Volatility Index, the benchmark gauge of U.S. options prices known as the VIX, surged 23 percent to 20.49 to exceed 20 for the first time this year.
Walt Disney Co., Intel Corp. and Coca-Cola Co. lost at least 3.2 percent to lead declines in all 30 stocks in the Dow Jones Industrial Average, sending the gauge down 354 points for its worst decline since November. PulteGroup Inc., D.R. Horton Inc. and Lennar Corp. lost at least 7.7 percent for the worst declines in the S&P 500 amid concern higher interest rates will hurt demand for new houses.
Exxon Mobil Corp. fell 2.1 percent today, bringing its market capitalization to about $396 billion and leaving no company in the world valued at more than $400 billion for the first time since April, according to data compiled by Bloomberg.
An S&P index of homebuilders sank 7.1 percent, the most in a year, even after sales of previously owned U.S. homes climbed more than forecast in May to the highest level since November 2009. Purchases of existing houses increased 4.2 percent to an annualized rate of 5.18 million from 4.97 million in April, National Association of Realtors figures showed. The median forecast in a Bloomberg survey called for a 5 million rate of sales.
Another report showed the index of U.S. leading indicators rose less than projected in May, a sign the world’s largest economy may take time to accelerate. The Conference Board’s gauge of the outlook for the next three to six months increased 0.1 percent after a revised 0.8 percent gain in April that was higher than initially reported. The median forecast of economists called for a rise of 0.2 percent.
More Americans than forecast filed applications for unemployment benefits last week, with claims climbing by 18,000 to 354,000 in the week ended June 15 from a revised 336,000 the prior period, the Labor Department reported. The median forecast of 46 economists surveyed by Bloomberg called for 340,000.
“Employment is the most important thing at the end of the day,” Uri Landesman, president of New York-based hedge fund Platinum Partners, which manages about $1.2 billion, said by telephone. “The unemployment numbers today underscored the fact that despite the fact that balance sheets are fairly strong, no one is hiring because nobody believes that this is really going to be a long, sustained recovery.”
Bernanke’s remarks yesterday prompted economists to predict a faster reduction in bond purchases. The first cut will come at the Sept. 17-18 policy meeting, according to 44 percent of economists in a Bloomberg survey. In a June 4-5 survey, only 27 percent of economists forecast tapering would start in September.
Speculation that the Fed will begin withdrawing its stimulus measures has boosted trading in an exchange-traded note tracking U.S. volatility. The iPath S&P 500 VIX Short-Term Futures ETN was the third most-active ETF in the U.S. yesterday, with 86.7 million shares changing hands, according to data compiled by Bloomberg. While the Nikkei 225 Stock Average Volatility Index fell 3.6 percent today, a similar measure for Hong Kong’s Hang Seng Index jumped 7.7 percent.
The stock selloff pushed the MSCI all-country gauge down more than 7 percent from the five-year high reached on May 21, the day before Bernanke raised the possibility of reducing stimulus should economic indicators improve. About $2.4 trillion was erased from global equity values over that stretch, with indexes in Hong Kong and Japan sliding more than 20 percent into bear markets.
Germany’s 10-year bund yield climbed 11 basis points to 1.67 percent, a four-month high. Spanish bonds stayed lower, erasing six days of gains, as the nation sold 4.02 billion euros ($5.3 billion) of debt maturing in 2018, 2021, and 2023, compared with a maximum target of 4 billion euros.
Australia’s 10-year yield rose as much as 23 basis points to 3.65 percent, a level unseen since March 15, and New Zealand’s 10-year rate surged 30 basis points to 4.09 percent.
U.S. 30-year bond yields jumped 11 basis points to 3.52 percent, the highest since August 2011, and two-year rates increased two basis points to 0.33 percent.
Volatility in Treasuries as measured by the Bank of America Merrill Lynch MOVE Index was at 86.89 yesterday, the highest since June 2012.
The Fed may be unable to calm volatility it triggered in global financial markets after it signaled an eventual cut in its monetary stimulus, according to Bill Gross, manager of the world’s biggest bond fund.
“I doubt they can put Humpty Dumpty back together again,” Pacific Investment Management Co.’s founder Gross said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Mike McKee. Vice Chairman “Janet Yellen’s task was to damp volatility, to lower that term premium, to calm markets, and they did that. But now there is significant unrest.”
Investor confidence in U.S. corporate credit plunged.
The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, increased 5.7 basis points to a mid-price of 91.4 basis points at 11:02 a.m. in New York, after yesterday climbing 3.9 basis points, according to prices compiled by Bloomberg. That’s the biggest two-day jump on a closing basis since the measure rose 8.8 in the period ended May 14, 2012, excluding rolls into new series of the benchmark.
The dollar strengthened against all 16 major peers except the franc and pound, surging 1 percent to 97.45 yen and appreciating 0.6 percent to $1.3224 per euro. Norway’s krone tumbled 3.8 percent versus the dollar, the most since 2008.
The Australian dollar dropped for a fifth day, sliding 1.1 percent to 91.90 U.S. cents and reaching 91.64, the weakest since September 2010.
The JPMorgan Global FX Volatility Index increased to as high as 11.51 percent, the highest in a year. The average in the past 12 months is 8.66 percent.
The Stoxx Europe 600 Index slid 3 percent, the most since November 2011, and closed at its lowest level of the year as all 19 industry groups retreated. Germany’s DAX Index tumbled 3.3 percent for its biggest decline in more than a year.
Randgold Resources Ltd., a producer of the precious metal in Africa, led materials stocks lower, sinking 7.5 percent. BHP Billiton Ltd. and Rio Tinto Group, the world’s biggest mining companies, lost at least 4.5 percent.
The number of shares changing hands in Stoxx 600 companies today was 32 percent greater than the 30-day average, according to data compiled by Bloomberg. The VStoxx Index, which measures the cost of options hedging against moves in the Euro Stoxx 50 Index, climbed 16 percent.
The MSCI Emerging Markets Index slid 4.1 percent, the most since 2011. Indonesia’s Jakarta Composite Index tumbled 3.7 percent while India’s Sensex and Russia’s Micex index lost at least 2 percent.
Investors are pulling money from emerging markets at the fastest pace in two years as slowing growth, prospects for lower stimulus and anti-government protests from Brazil to Turkey rattled investors. More than $19 billion left funds investing in developing-nation assets in the three weeks to June 12, the most since 2011, according to EPFR Global.
“We expect another round of correction in the period ahead, across the board, be it in emerging market currencies or emerging market fixed income,” a team led by Benoit Anne, head of strategy at Societe Generale SA in London, wrote in a report today. “We are positioned quite defensively.”
The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slid 3.3 percent to the lowest since September. The preliminary reading of 48.3 for a Chinese purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics compares with the 49.1 median estimate in a Bloomberg News survey of 15 economists.
China’s seven-day repurchase rate, a gauge of interbank funding availability, rose to the highest since at least 2006. The central bank has refrained from using reverse-repos to inject funds into the interbank market since Feb. 7.
All 24 commodities tracked by the S&P GSCI Index retreated.
Gold for immediate delivery lost 5.2 percent to $1,280.69 an ounce, the lowest price since September 2010. Gold futures were down 6.9 percent in New York. Holdings in the SPDR Gold Trust, the world’s largest exchange-traded product backed by bullion, fell below 1,000 metric tons for the first time in four years. Silver plunged 8.2 percent to $19.6607 an ounce, the lowest since September 2010, and palladium declined 4.4 percent, retreating for a sixth day in its longest slump in almost a year.
Copper for delivery in three months retreated 2.7 percent to $6,770 a metric ton on the London Metal Exchange. Nickel dropped 3.5 percent to $13,700 a ton, the lowest price since May 2009.
West Texas Intermediate crude fell for a second day, declining 2.9 percent to settle at $95.40 a barrel for its biggest decline in seven months. The volume of all futures traded was 45 percent above the 100-day average.