The Dow Correction And Everything Else That Went Wrong in Stocks

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Global Rout Wreaks Havoc on U.S. Stocks

The global equity selloff that sent benchmark indexes to their worst week in four years played havoc with individual stocks and industries in the U.S. market.

To energy shares already snared in a bear market, add semiconductor stocks, which crossed the threshold by capping a decline of more than 20 percent. Apple Inc. also entered a bear market, while the Dow Jones Industrial Average entered a so-called correction with a decline of 10 percent from its last record. Biotechnology, small caps, media, transportation and commodity companies have also entered corrections.

The Standard & Poor’s 500 Index sank 3.2 percent on Friday to cap a weekly loss of 5.8 percent, the worst daily and weekly declines in almost four years. The benchmark gauge is down 7.5 percent from its last record in May, after dropping out of a trading range that has supported it for most of the year.

“For much of this year, the glass was considered half full and now people the last 48 hours are thinking it’s looking more empty,” George Hashbarger, who oversees $224 million as chief executive officer and portfolio manager at Knoxville, Tennessee-based Quintium Advisors LLC, said by phone. “This is more like October than it is buy-the-dip.”

The S&P 500 sank to 1,970.89 at 4 p.m. in New York, its lowest level since October. The index ended the week down 4.3 percent for the year and sank below the 2,000 level for the first time since February. The Dow lost more than 1,000 points for the week to 16,459.75 after a 530-point, or 3.1 percent, drop on Friday. The Nasdaq 100 Index slumped 4.3 percent to extend a two-day drop to almost 7 percent, its worst back-to-back decline since the financial crisis in 2008.

More than 10.5 billion shares traded hands in the U.S. today, the most since December, as the rout in stocks and the expiration of options boosted trading volume.

VIX Doubles

The Russell 2000 Index of smaller companies sank 1.3 percent, extending its drop from a June record to more than 10 percent. The VIX, the benchmark gauge of U.S. equity options, more than doubled in the week for its biggest gain on record amid demand for contracts to protect against further losses.

U.S. equities followed overseas markets lower, as the Stoxx Europe 600 Index tumbled 3.3 percent, extending its drop since April to almost 13 percent, and the MSCI All-Country World Index slid 2.7 percent to the lowest since October.

Equities continued to slide today after China released its weakest manufacturing data since the global financial crisis, which accelerated losses in riskier assets. Worries about the world economy had already been intensifying after China devalued its currency last week, compounded by uncertainty about what Federal Reserve inflation concerns portend for interest rates.

“This market won’t have legs until we have further clarity on the Chinese currency and U.S. rates -- right now we have neither,” said Michael Ingram, a market strategist at BGC Partners in London. “Even then, the dependent question mark over growth will linger. Investors are scared and confused, and if you are an emerging market equity investor, probably close to suicidal.”

Trading Range

Before this week, U.S. equities had held their ground throughout 2015, weathering turmoil from Greece and headwinds including a strong dollar that threatened multinationals’ earnings and a more than 60 percent drop in oil prices.

The S&P 500 stuck within a range roughly tracking its 50-, 100- and 200-day moving averages, boosted by signs the economy is recovering and support from central banks. The benchmark index hadn’t had a decline of more than 5 percent all year, and hasn’t dropped more than 10 percent since 2011.

Valuations Drop

After the selloff, the S&P 500 is trading at 16.65 times earnings. That’s down from 18.9 times a month ago, which was near a five-year high, but still exceeds the five-year historical average of 16.1 times profit.

Data in the U.S. today showed an August factory orders index fell. Investors are watching economic data for clues on when the Fed will raise interest rates.

Slower global growth may cause the Fed to delay its first rate increase since 2006. Minutes of the central bank’s latest meeting, released earlier this week, showed officials are concerned about stubbornly low inflation even as the job market improves. Traders are now pricing in a 32 percent probability of a rate move at the September meeting, down from 50 percent before the release of the minutes.

The Chicago Board Options Exchange Volatility Index surged 46 percent to 28.03. The measure rallied 118 percent this week, the biggest five-day gain on record.

Investors are selling the biggest winners of 2015. Companies that have come to be known as the Fab Five -- Netflix Inc., Facebook Inc., Amazon.com Inc., Google Inc. and Apple Inc.-- have seen about $100 billion in market value erased over two days. Losses pushed the Nasdaq 100 Index down 7.4 percent over the past five days, the biggest weekly decline since May 2010.

Broad Retreat

All 10 major groups in the S&P 500 retreated today. Technology companies dropped 4.2 percent, while energy and consumer discretionary shares slid more than 3.2 percent.

Intuit Inc. was the biggest decliner in the S&P 500 and Nasdaq 100, plunging 13 percent, the most since March 2003. The company, which makes Quicken home-accounting software, fell after providing annual forecasts for sales and earnings that trailed analysts’ estimates.

Facebook and Apple were also among the biggest drags in the technology sector, losing more than 4.9 percent. Skyworks Solutions Inc. slid 4.1 percent as the Philadelphia Semiconductor Index fell into a bear market, having plummeted 22 percent from a 15-year high reached in June.

Ross Stores Inc. decreased 9.5 percent after providing earnings guidance that fell short of analyst expectations.

Valero Energy Corp. and Marathon Petroleum Corp. dropped more than 9 percent and were the biggest decliners in the S&P 500’s energy sector, in which 37 out of 40 stocks fell. Tesoro Corp. and Halliburton Co. declined at least 5.3 percent.

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