S&P 500 Pares Worst Loss Since 2011, Small Caps Advance

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An afternoon rebound helped the Standard & Poor’s 500 Index pare its biggest intraday plunge since 2011 amid speculation the selloff was overdone.

The S&P 500 lost 0.8 percent to 1,862.49 at 4 p.m. in New York, trimming an earlier plunge of as much as 3 percent. The index pared its gain for the year to less than 0.8 percent and has tumbled 7.4 percent since a record on Sept. 18. The Dow Jones Industrial Average fell 173.45 points, or 1.1 percent, to 16,141.74 after dropping as much as 460 points. The Russell 2000 Index of smaller companies jumped 1 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.”

The Chicago Board Options Exchange Volatility Index, the benchmark gauge of options prices known as the VIX, jumped 15 percent to 26.25, the highest level since 2012, amid demand for protection against losses in equities. Almost 12 billion shares changed hands in the U.S., the most since October 2011.

Stocks pared losses after the S&P 500 fell to its low of the day of 1,820.66 shortly before 1:30 p.m. in New York. About an hour later, Bloomberg News reported that Federal Reserve Chair Janet Yellen voiced confidence in the durability of the U.S. economic expansion in the face of slowing global growth and turbulent financial markets at a closed-door meeting in Washington last weekend, according to two people familiar with her comments.

The S&P 500’s earlier plunge wiped out its gains for the year as banks sank after reporting earnings while a drop in retail sales reignited concern about the economy and a second health worker in Texas caught Ebola.

Economy, Ebola

Retail sales in the U.S. dropped more than forecast in September, decreasing 0.3 percent after a 0.6 percent gain in August that was the biggest in four months, Commerce Department figures showed. The median forecast of 81 economists surveyed by Bloomberg called for a 0.1 percent decline.

Another report today showed manufacturing in the Federal Reserve Bank of New York’s region slowed more than projected in October. The bank’s so-called Empire State index dropped to 6.2 this month from an almost five-year high of 27.5 in September. Readings greater than zero signal growth.

Concern about the spread of Ebola has also started to affect investor psychology, contributing to a decline of as much as 22 percent in U.S. airline stocks since a high in September and contributing to 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 Bloomberg U.S. Airlines Index lost 0.5 percent today, paring a drop of as much as 4.9 percent.

Financial Stress

“You have more concerns about Ebola, Empire manufacturing and retail sales numbers were quite poor, and even some earnings have been disappointing,” Matt Maley, an equity strategist at Miller Tabak & Co LLC in Newton, Massachusetts, said in a phone interview.

Financial stress is rising, according to gauges maintained by the Federal Reserve Banks of Chicago and St. Louis, as well as measures compiled by Goldman Sachs Group Inc. and Bank of America Merrill Lynch. The deterioration reflects tightening credit conditions for companies, higher stock-market volatility and a stronger dollar.

‘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.”

In other markets, Greece’s Athens Stock Exchange Index plunged 6.3 percent, the biggest drop since 2012, amid concern the government’s plan to end its bailout early will leave the nation unable to raise funding.

Investors are watching earnings for signs of the economy’s strength. More than 50 S&P 500 companies are releasing results 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. American Express Co. and EBay Inc. will report after the close.

Commodity and energy shares, two of the groups that are down the most since the market’s high last month, ended higher today as the market recovered from its lows of the session. EOG Resources Inc., Williams Cos. and Air Products & Chemicals Inc. at least 3.7 percent to pace gains.

KeyCorp lost 5.8 percent to $12.14 for its biggest drop in three years. Regions Financial Corp., Bank of America Corp. and Citigroup Inc. each declined at least 3.5 percent.

Banks Slide

KeyCorp reported that net income slid 13 percent to $197 million, or 23 cents a share, from $229 million, or 25 cents, a year earlier. Noninterest expense of $704 million was higher than some analysts predicted and Chief Executive Officer Beth Mooney said its acquisition of Pacific Crest Securities LLC last month added to expenses.

Bank of America Corp. lost 4.6 percent, the most since April, to $15.764. Revenue slid 4.3 percent to $21.2 billion. Noninterest expenses rose 20 percent to $19.7 billion because of a record $16.7 billion settlement with the government over mortgage probes.

Intel Corp. lost 2.7 percent to $31.28 even after projecting sales that are poised to top analysts’ estimates in the fourth quarter as companies snap up personal computers with the latest chips to replace aging machines.

“The economy isn’t as strong as perhaps everyone thought,” Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $110 billion, said in a phone interview. “The concern here is that the weakness in Europe and Asia is going to be exported to the U.S. and our economy is going to be negatively impacted.”

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