Stocks Extend Selloff as Dow Erases 2014 Gain; Bonds Rise

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Hong Kong Protest
Demonstrators rebuild a barricade near the Central Government Offices in Hong Kong, China, on Thursday, Oct. 9, 2014. Photographer: Brent Lewin/Bloomberg

Global stocks extended a selloff, with the Dow Jones Industrial Average erasing gains for the year, as losses among chipmakers spread to the broader market amid concern over economic growth. Treasuries climbed with the dollar.

Standard & Poor’s 500 Index slipped 1.1 percent at 4 p.m. in New York, giving it the biggest weekly loss in two years. The Dow retreated 0.7 percent while the Nasdaq Composite plunged 2.3 percent. The MSCI All-Country World Index tumbled 1.6 percent, capping the worst week since June 2013. The Stoxx Europe 600 Index retreated the most since May 2012 over the five days. Crude oil capped the biggest weekly drop since January amid signs of a global glut. The Bloomberg Dollar Spot Index jumped 0.4 percent today while gold slid.

Global equities have lost $3.5 trillion in value since reaching a record last month. European Central Bank President Mario Draghi clashed with Germany’s finance minister yesterday over the steps needed to revive growth in the euro area, while Federal Reserve officials have said the U.S. economy may be at risk from a global slowdown. Chipmakers fell after Microchip Technology Inc. said quarterly revenue was crimped by a decline in sales in China and warned of an industry correction.

“Risks to global growth are at the center of all concerns right now,” Alessandro Bee, a strategist at Bank J Safra Sarasin AG, said by phone from Zurich. “Investors are paying more attention to what is going on outside America, because if a slowdown in the global economy drags the U.S. economy down, that really does not bode well for equities.”

The MSCI All-Country index retreated 2.7 percent this week, for a third consecutive drop, the longest streak since August 2013. All 10 industry groups in the gauge dropped today, with materials companies sliding the most.

Weekly Decline

The S&P 500 ended the week with a 3.1 percent loss, the worst since May 2012. It slumped 2.1 percent yesterday, erasing its biggest rally in a year the previous day. The gauge is down 5.2 percent from a record on Sept. 18, trimming its gain for 2014 to 3.1 percent. The Dow is 4.3 percent below its all-time high on Sept. 19.

Stocks continued to slip after the close of equity exchanges, with S&P 500 December futures falling as low as 1,893.5. The contract closed at 1,897.4 on Aug. 7 and reached an intraday level of 1,892.9 that day, a key level for technical analysts.

The Chicago Board Options Exchange Volatility Index rose 13 percent to 21.24 today, the highest level since Feb. 3. The S&P 500 has posted six days of moves exceeding 1 percent so far in October, after going without such a move for 62 days through July 16. That was the longest stretch of market calm since 1995.

Roller Coaster

A daily average of about 7.9 billion shares changed hands this week, the most since November 2011, data compiled by Bloomberg show.

“It’s been an emotional roller coaster,” Mark Freeman, who oversees $20.1 billion as chief investment officer at Westwood Holdings Group Inc., said by phone. “It’s really about investors’ degree of confidence on growth outside of the U.S. and that’s what been called into question.”

Declines this week have been biggest in small-cap and transportation shares. The Russell 2000 Index is down 4.7 percent this week, extending its retreat from a March high to 13 percent. The Dow Jones Transportation Average has plunged 6.9 percent since Oct. 3, its worst week in three years.

Energy shares in the S&P 500 fell 1.2 percent today, bringing losses for the week to 5 percent, the biggest drop since November 2011. The group is down 17 percent from a record in June as crude prices have plummeted.

Chipmakers Plunge

Chipmakers had the worst losses, with the Philadelphia Semiconductor Index falling 6.9 percent. Microchip Technology plunged 12 percent after weaker demand from China hurt sales. Juniper Networks Inc. sank 9.1 percent after reporting preliminary results that missed its own forecast. Intel Corp. and Cisco Systems Inc. sank more than 3.5 percent.

“We believe that another industry correction has begun, and that this correction will be seen more broadly across the industry in the near future,” Steve Sanghi, Microchip’s chief executive officer, said in a statement.

Microchip Technology makes semiconductors used in products ranging from home appliances to computer network hardware to cars, making its earnings a broad indicator of demand across the industry.

Investors are also watching earnings reports after Alcoa Inc. unofficially kicked off the results season this week. JPMorgan Chase & Co., Citigroup Inc., BlackRock Inc. and Google Inc. are among S&P 500 members posting results next week. Profit for S&P 500 probably rose 4.8 percent and sales gained 4.2 percent in the third quarter, analysts projected.

European Shares

The Stoxx Europe 600 Index retreated the most since May 2012 for the week, dropping 4.1 percent. German equities plunged 2.4 percent today, closing at the lowest level in a year. Infineon Technologies AG led declines, falling 6.8 percent. The DAX Index has lost 12 percent since its record in July. France’s CAC 40 Index is down 11 percent from its June high.

The International Monetary Fund cut its forecast for global growth this week and said the euro area faces the risk of a recession. Draghi pledged at the IMF’s annual meeting to loosen monetary policy more if needed and called on those governments with the room to ease fiscal policy to do so. That contrasted with German Finance Minister Wolfgang Schaeuble, who warned against U.S.-style quantitative easing and urged continued budgetary discipline.

Dollar, Treasuries

The Bloomberg Dollar Spot Index, which measures the greenback against 10 U.S. trading partners, added 0.4 percent, up for a second day. It still posted its first weekly decline since August, after rallying to a four-year high.

Yields on 10-year Treasuries dropped 2 basis points to 2.29 percent today. The yield has declined 14 basis points this week, the most since September 2013. It touched 2.28 percent yesterday, the lowest in more than 15 months. Investors are speculating that Fed concerns over slowing economic growth may push back interest-rate increases.

West Texas Intermediate oil settled little changed after wiping out a drop of as much as 2.5 percent. The commodity fell into a bear market yesterday amid speculation that rising global oil supplies will be more than enough to meet slowing demand. Brent crude oil touched the lowest price since December 2010. The European benchmark crude entered a bear market on Oct. 8.

Gold, Silver

Gold dropped 0.3 percent, falling from a two-week high, as the dollar rose, cutting the metal’s appeal as an alternative investment. Silver slipped 0.7 percent, while platinum lost 1.3 percent. Aluminum, zinc and nickel also fell.

The MSCI Emerging Markets Index slid 1.8 percent, its biggest retreat since January, giving its fifth straight weekly drop. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong decreased the most in a month, reversing its advance in the five-day period. The Shanghai Composite Index slipped 0.6 percent.

The IMF lowered its forecasts for economic growth in emerging Asia to 6.5 percent this year and 6.6 percent next. Those are down from April estimates of 6.7 percent for 2014 and 6.8 percent for 2015.

Russian Shares

Russia’s Micex Index declined 1.5 percent, dropping for a second week. The ruble depreciated 0.6 percent, extending its slump in the past three months to 16 percent, the worst performance among currencies tracked by Bloomberg worldwide. The central bank has spent more than $3 billion to slow the currency’s selloff amid a dollar shortage and slump in oil prices.

The Borsa Istanbul 100 Index dropped 2.3 percent, taking it down 1.2 percent in a shortened, three-day week. Turkey’s main city in the country’s southeast has been under curfew for two nights, as Kurds are protesting what they say is Turkey’s failure to come to the aid of a town across the border in Syria that’s under siege by Islamic State militants.

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