U.S. Stocks Fall, Bonds Rally as Fed Growth Concern Roils Market

The Fed Held Steady on Interest Rates… Now What?
  • S&P 500 retreats second day as commodity producers tumble
  • Crude, copper sink on slowdown concer while gold rallies

U.S. stocks tumbled as commodities from copper to oil sank, while Treasuries rallied a second day after the Federal Reserve’s warning on the global economic outlook rippled through markets.

The Standard & Poor’s 500 Index continued its post-Fed slide, with energy producers leading declines. Oil and industrial metals got routed, while gold gained after Fed Chair Janet Yellen sounded caution over slowing growth in China.

While Yellen said recent developments “may restrain economic activity somewhat,” she added that the implications “have not fundamentally altered” the Fed’s outlook for the economy. The central bank’s decision to delay raising interest rates kept in place a measure of uncertainty that has added to volatility in global equity markets.

“There’s some concern that the Fed sees something we’re not seeing in the data,” said Eric Green, director of research and senior managing partner at Penn Capital, which oversees $4 billion in Philadelphia. “Some investors wanted them to rip the Band-Aid off and get the first one done. Then we wouldn’t have to obsess about it for the two weeks before each meeting.”

Yields on 2- and 10-yr notes tumble
Yields on 2- and 10-yr notes tumble

Stocks

The S&P 500 retreated 1.6 percent at 4 p.m. in New York, erasing its gain for the week. The gauge ended lower yesterday by 0.4 percent, erasing a gain of as much as 1.3 percent after Yellen indicated that global developments overshadowed signs of strength in America. 

The expiration of some futures and options on stocks and indexes, known as quadruple witching, added to volume, with trading in S&P 500 stocks 60 percent above the 30-day average.

“We’ve again added uncertainty as to when the hike is going to happen,” Mark Kepner, an equity trader at Themis Trading LLC in Chatham, New Jersey, said by phone. “We’re at the point where we’re almost looking at other countries as opposed to our own for signs of when the Fed will lift off.”

Automakers and banks led declines in Europe, with the Stoxx Europe 600 Index dropping 1.8 percent to erase its gain for the week.

Bonds

U.S. two-year Treasuries extended their biggest one-day rally since 2009, while Pacific Investment Management Co. said policy makers may wait until next year before raising rates. JPMorgan Asset Management said the Fed’s statement was good for bonds and they still like debt due between seven and 10 years.

Bonds gained from Australia to Germany, while Treasuries added to an advance from Thursday. The yield on 10-year German bunds, the euro region’s benchmark sovereign securities, dropped 12 basis points to 0.66 percent, set for its biggest decline since July 7, on prospects for further easing by the European Central Bank.

Rates on similar-maturity Italian bonds fell 14 basis points to 1.76 percent, while those on Spain’s declined 15 basis points to 1.94 percent. The yield on U.S. 10-year Treasuries fell six basis points to 2.13 percent on Friday, after sliding 10 basis points the previous day.

Currencies

The dollar reversed losses against most of its major peers on Friday. The Bloomberg Dollar Spot Index added 0.7 percent after touching its lowest level since Aug. 25.

The greenback rose 1.3 percent to $1.1293 per euro, after tumbling 1.3 percent to $1.1435 the previous day. The yen was little changed at 119.96 per dollar.

Emerging Markets

Emerging-market stocks and currencies reversed earlier gains to end mixed. The MSCI Emerging Markets Index fell 0.1 percent, trimming this week’s advance to 3 percent. A Bloomberg gauge of 20 currencies fell 0.3 percent after eight days of gains. 

Commodities

The Fed decision gave gold bulls a boost, as the metal headed for its first weekly advance in a month. Bullion futures for December delivery gained 1.9 percent to $1,137.80 an ounce in New York, after touching $1,141.50, the highest since Sept. 2. Prices had a 3.1 percent gain this week.

Oil dropped for a second day, with futures in New York tumbling 4.7 percent and 3.3 percent in London. West Texas Intermediate for October delivery dropped $2.22 to settle at $44.68 a barrel on the New York Mercantile Exchange, the biggest decrease since Sept. 1. Prices rose 5 cents this week.

Brent for November settlement fell $1.61 to end the session at $47.47 a barrel on the London-based ICE Futures Europe exchange.

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