S&P 500 Pares Biggest Loss Since 2011; Bonds Trim Rally

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A rig hand removes drill pipe from a natural gas well at a hydraulic fracturing site located atop the Marcellus shale rock formation in Washington Township, Pennsylvania. Crude stockpiles in the U.S. probably expanded by 2.5 million barrels last week, a Bloomberg News survey shows before government data tomorrow. Photographer: Ty Wright/Bloomberg

The Standard & Poor’s 500 Index pared its biggest intraday plunge since 2011 as small-cap shares rebounded amid speculation the selloff was overdone. Treasuries trimmed their largest rally in five years.

The S&P 500 slid 0.8 percent at 4 p.m. in New York, after earlier dropping 3 percent to briefly erase its gains for the year. The Russell 2000 Index of smaller companies jumped 1 percent. The rate on 10-year Treasuries fell 4 basis points to 2.16 percent, after dropping below 2 percent for the first time since June 2013. The Stoxx Europe 600 Index plunged 3.2 percent, leaving it down more than 10 percent from a June high. Commodities reached a five-year low as oil extended a rout. The Bloomberg Dollar Spot Index lost 0.7 percent and gold rose 0.9 percent.

“Investor sentiment has clearly been pummeled of late as some signs of surrender are forming,” Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist in New York, wrote in a note today. “While no one ever rings a bell at the bottom and there is not generally a cathartic, cataclysmic crescendo of capitulation, fear is emerging which intimates that a floor may be within reach.”

Equities plummeted early as data showed retail sales in the U.S. dropped 0.3 percent in September, more than economists forecast, while China reported weaker-than-estimated consumer inflation. Fed Chair Janet Yellen voiced confidence in the durability of the U.S. economic expansion in the face of slowing global growth at a closed-door meeting last weekend, according to two people familiar with her comments.

Equity Recovery

Stocks bounced in the afternoon after the S&P 500’s losses snowballed to 3 percent. The index came to within 4 points of erasing the day’s decline. Had the recovery gone all the way, it would’ve been the biggest reversal since May 2010, when the S&P 500 erased a drop of more than 3 percent, data compiled by Bloomberg show.

The Russell 2000 was down 2 percent at its lowest point, before turning higher in the final half-hour of trading. The index has fallen more than 10 percent from a record reached in March. The S&P 500 hasn’t had a decline of that magnitude in three years.

The benchmark gauge has fallen 6.2 percent from its Sept. 18 record, trading below its 200-day average, amid concern a global slowdown will hurt the American economy just as the Federal Reserve weighs when to raise interest rates.

Economic Data

Retail sales in the U.S. dropped more than forecast in September, reflecting a broad-based pullback that signaled consumers took a breather. Another report showed manufacturing in the Fed Bank of New York’s region slowed more than projected in October. The bank’s so-called Empire State index dropped to 6.2 from an almost five-year high of 27.5 in September. Readings greater than zero signal growth.

Yellen told the Group of 30 that the economy looked to be on track to achieve growth of around 3 percent going forward, according to the people familiar with her comments during the meeting in Washington. Businesses were “generally optimistic” as economic activity continued to grow at “modest to moderate” pace, according to the Fed’s Beige Book report released today.

Overseas, data showed China’s consumer-price gains declined to the lowest in five months. Reports in Europe this week showed German investor confidence slid to the weakest level in almost two years while U.K. inflation unexpectedly stalled.

‘Bad Mood’

“The market was already in a bad, bad mood ahead of the largely known weakness in retail sales this morning,” Andrew Wilkinson, chief market analyst at Interactive Brokers LLC, wrote in a note today. “Even the best report of the year would have failed to make much impact on investor sentiment captivated by signs of the bear and other factors such as the spread of the Ebola virus.”

Almost 12 billion shares changed hands in the U.S., the most since October 2011. Financial companies in the S&P 500 plunged 2 percent for the biggest losses.

Intel Corp. and JPMorgan Chase & Co. sank more than 2.7 percent to pace losses in the Dow Jones Industrial Average. Wal-Mart Stores Inc. dropped 3.6 percent after cutting its annual sales forecast and predicting slower profit growth over the next three years. KeyCorp retreated 5.8 percent after the lender’s quarterly revenue trailed analysts estimates. Bank of America Corp. sank 4.6 percent after revenue declined.

Netflix Tumbles

Netflix Inc. plunged 25 percent in late trading. After the market close, the company reported third-quarter subscriber growth that missed the company’s forecast, saying a recent price increase may have hurt signups to its monthly video-streaming service.

Investors are watching earnings for signs of the economy’s strength. More than 50 S&P 500 companies are releasing earnings this week, according to data compiled by Bloomberg. Profit for the members of the index probably rose 4.8 percent in the third quarter and sales increased 4.2 percent, analysts projected.

Concern about the spread of Ebola has also started to affect investor psychology, contributing to a 17 percent decline in U.S. airline stocks since a high in September and spurring intermittent plunges in broader averages. A second health-care worker in Texas tested positive after caring for an Ebola patient, opening new questions about oversight lapses.

The benchmark 10-year yield fell 4 basis points to 2.16 percent and reached the lowest since May 2013. The rate retreated as much as 34 basis points.

Treasury Volume

Treasury trading volume reached the highest on record as about $777 billion in U.S. government debt changed hands by 2 p.m., according to ICAP Plc, the world’s largest interdealer broker.

Rates on federal fund futures show traders betting that the Fed will raise interest rates in December 2015, with chances of an increase in September fading to 37 percent from 46 percent yesterday and 67 percent two months ago, according to data compiled by Bloomberg.

The MSCI All-Country World Index fell 1 percent, extending its lowest level since February and dropping for a fifth day.

The Stoxx Europe 600 Index fell 3.2 percent, the most in almost three years, and closed at the lowest level since December. The gauge is down more than 10 percent from its high for the year on June 10, meeting the common definition of a correction.

Shire Plc tumbled 22 percent. AbbVie Inc. is on the verge of abandoning its $51 billion takeover of Shire after recent talks with the U.S. Treasury Department and Internal Revenue Service left it convinced that tax-rule changes would undermine the deal’s rationale, people familiar with the matter said.

Greek Bailout

Greece’s 10-year notes dropped a third day, pushing the yield up by the most in more than two years, on concern the government’s plan to end its bailout early will leave the nation unable to raise funding sustainably. The Athens Stock Exchange General Index plunged 6.3 percent, after yesterday’s 5.7 percent decline.

The Bloomberg Commodity Index dropped 1.2 percent to the lowest level since 2009 as copper and zinc slumped amid concern that demand is slowing in China, the world’s biggest consumer.

Brent crude fell 1.5 percent to a four-year low. West Texas Intermediate crude retreated 6 cents to $81.78 a barrel, the least in two years.

Both grades have collapsed into a bear market as shale supplies boost U.S. output to the most in almost 30 years and global demand growth weakens. The largest OPEC producers are responding by cutting prices, sparking speculation that they will compete for market share rather than reduce supply.

Gold Advances

Gold futures climbed for a third day, adding 0.9 percent, as the weaker retail sales spurred speculation that interest rates will remain low, boosting demand for the metal as a haven. More than $970 million has been added to the value of global exchange-traded products backed by bullion this month.

The MSCI Emerging Markets Index slipped 1 percent to the lowest since March, with Russia’s Micex Index declining 1.2 percent.

The MSCI Asia Pacific Index climbed 0.3 percent, rebounding from a six-month low. The Hang Seng China Enterprises Index of mainland companies traded in Hong Kong rose 0.3 percent, after yesterday capping a decline of more than 10 percent from its peak in September. The Shanghai Composite Index gained 0.6 percent.

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