A midafternoon rally in U.S. stocks faded as encouragement from Federal Reserve minutes proved fleeting and investors refocused on China and the global economy.
Stocks briefly trimmed losses as Fed minutes showed policy makers judged conditions for higher rates haven’t been met yet. While that reduced speculation the central bank will raise rates at its next gathering, China’s shock devaluation continued to roil emerging-market assets and threatened to slow global growth amid a rout in commodities.
“No matter what you’re going to get a knee-jerk reaction,” Steve Bombardiere, an equity trader at Conifer Securities LLC in New York, said by phone. “Trading is so thin it’s easy to push things around but there is some nervousness now with commodities getting weaker and China seeming like it’s losing a little control.”
The Standard & Poor’s 500 Index fell 0.8 percent to 2,079.61 at 4 p.m. in New York, hovering above its average price for the past 200 days. The gauge nearly erased all of its losses after the minutes were released, before it resumed a slide. The Dow Jones Industrial Average lost 162.61 points, or 0.9 percent, to 17,348.73.
Caterpillar Inc. and Freeport-McMoRan Inc. paced declines as raw-material and industrial shares slumped more than 1 percent as a group. Energy shares tumbled the most since January as an unexpected increase in U.S. crude stockpiles sent oil prices deeper into a bear market.
Investor anxiety over deteriorating overseas markets is returning to American equities after a week of relative calm. The selloff gripping emerging markets isn’t letting up as stocks drop to four-year lows and countries including Vietnam and Kazakhstan weaken their currencies to adjust to the fallout from China’s devaluation. Meanwhile, oil has tumbled more than 30 percent since this year’s peak amid signs that producers are maintaining output despite surpluses.
U.S. stocks slumped with global equities, as the MSCI All-Country World Index dropped 0.9 percent and the Stoxx Europe 600 Index tumbled 1.8 percent. The Chicago Board Options Exchange Volatility Index, known as the VIX, rose 11 percent to 15.25 for its third day of gains.
Concerns about global growth are increasing as the Fed considers the timing of its first interest rate increase since 2006. Officials said last month that while conditions for raising interest rates were approaching, they saw more room for labor market healing and need more confidence that inflation is moving toward their goal, according to Fed minutes released Wednesday.
“Almost all voters needed more evidence on inflation,” said Anthony Valeri, a market strategist with LPL Financial Corp. in San Diego. “Since the meeting, inflation expectations have declined, the dollar has increased further and China has devalued its currency. All of those would argue inflation is less of a risk now than it was at the time of the meeting. That would argue against a Fed rate hike.”
The Fed gathering preceded China’s surprise devaluation on Aug. 11 that prompted some investors to scale back bets on a rate increase in September. Those odds were reduced further on Wednesday, with traders pricing in a 36 percent probability of a rate move next month.
Data earlier in the day showed the cost of living in the U.S. rose in July at the slowest pace in three months, casting doubt on how quickly inflation will return toward the Fed’s goal.
Oil’s plunge will probably hold down inflation in the coming months. When combined with a stronger dollar and slower growth overseas, the energy slump will make the Fed’s 2 percent inflation target even more elusive.
The benchmark measure is stuck in the tightest trading range since 1927. Some momentum trades that worked well for investors earlier this year are showing signs of unraveling. A Citigroup Inc. index that tracks U.S. momentum stocks like Apple Inc. and Netflix Inc. fell last week.
Despite the gloom, some fund managers aren’t shying away from U.S. stocks, citing confidence in the economy and the American consumer. The S&P 500 is still up 1 percent for 2015, and is less than 2.5 percent away from a record reached in May.
Eight of 10 major groups in the S&P 500 dropped on Wednesday. Energy shares slid 2.8 percent as data showed U.S. crude inventories rose 2.62 million barrels last week, according to the Energy Information Administration. Analysts projected a 820,000 barrel decline in stockpiles.
Target Corp. rose 0.7 percent, paring an earlier rally of 5.4 percent. While second-quarter earnings beat estimates, the retailer said on a conference call that it’s having difficulties with items being out of stock.
As the earnings season winds down, about 74 percent of the S&P 500 members that have reported so far beat profit estimates, while 48 percent topped sales projections.
Yum! Brands Inc. rose 2.2 percent after saying Mickey Pant will succeed Sam Su as chief executive officer of its China unit.