U.S. Stocks Retreat Amid Global Slump in Auto, Commodity Shares

Vehicles bound for export at a port in Ulsan, South Korea.

Vehicles bound for export at a port in Ulsan, South Korea.

Photographer: SeongJoon Cho/Bloomberg
  • Fiat, Ford, GM follow global auto stocks lower on VW scandal
  • Biotech shares weigh for a second day amid Clinton plan

U.S. stocks fell, with raw-material shares dragged lower as commodities retreated, a selloff in biotechnology shares deepened and Volkswagen AG’s diesel-emissions cheating scandal continued to rattle global auto stocks.

Fiat Chrysler Automobiles NV fell 5.7 percent, while Ford Motor Co. and General Motors Co. lost at least 1.9 percent with investors wary of industry fallout. Monsanto Co. and Alcoa Inc. dropped more than 1.3 percent amid sliding commodity prices. The Nasdaq Biotechnology Index sank 1.7 percent after losing 4.4 percent Monday. Apple Inc., Google Inc. and Facebook Inc. declined at least 1.5 percent.

The Standard & Poor’s 500 Index lost 1.2 percent to 1,942.74 at 4 p.m. in New York, trimming a decline in the final hour after falling as much as 1.9 percent. It’s the third drop in four days, sending the gauge to a two-week low. The Dow Jones Industrial Average slid 179.72 points, or 1.1 percent, to 16,330.47. The Nasdaq Composite Index slumped 1.5 percent. About 7.3 billion shares traded hands on U.S. exchanges, in line with the three-month average.

“With macro uncertainty and very little fundamentals overall, when you see a rise in volatility it leads to investor uncertainty and any bad news has the opportunity to shake things up,” said Joseph Betlej, who helps oversee $33 billion as vice president of Advantus Capital Management. “It’s a hangover from last week’s Fed move. Yesterday was just a little bounce.”

S&P 500 Index
S&P 500 Index

Equities got a boost Monday after a quartet of Fed officials talked up prospects for higher interest rates in 2015, just days after the central bank jolted investors by citing global market turmoil and a slowdown in China as reasons for standing pat. Their remarks suggested continued improvement in the domestic economy may overshadow concerns about global conditions.

The central bank’s bid for greater transparency about its criteria for a rate increase has left markets on edge amid an expanding Fed checklist and conflicting U.S. data. Fed Chair Yellen said last week that policy makers would scrutinize slowing growth in China and emerging markets for risks that could spill over to the U.S.

Meanwhile, the market remains unconvinced a liftoff will take place this year after the Fed’s decision and its dovish statement. Traders are pricing in a roughly 41 percent probability of a rate increase by the Federal Open Market Committee’s December meeting, compared with 64 percent on Sept. 16 before the policy decision.

Volatility Rises

Equities have been particularly volatile amid anxiety over the impact of China’s slowdown on global growth and the Fed’s intentions. The Chicago Board Options Exchange Volatility Index has closed above 20 for 22 straight sessions, the longest stretch since June 2012. The measure of market turbulence known as the VIX jumped 11 percent Tuesday, the most in a month, to 22.44.

Several technical charts are also sounding warning signals that the worst of equities turmoil may not be over. A downward sloping neckline in a head-and-shoulders pattern have formed in the Dow. The index and the Dow Jones Transportation Average also breached the low from last October, flashing a so-called Dow Theory sell signal.

“On days when there’s not much economic data, that can lead to bigger moves,” said Brent Schutte, senior investment strategist at BMO Global Asset Management in Chicago, which manages $250 billion. “People are selling or buying off things that aren’t grounded in fundamentals.”

The S&P 500 had climbed 6.8 percent from its August low before the Fed unveiled its decision last Thursday to leave interest rates near zero. The benchmark has slumped 2.6 percent since the FOMC meeting concluded, and is down 8.8 percent from its all-time high in May.

CBOE VIX Index
CBOE VIX Index

All of the S&P 500’s 10 main groups declined Tuesday, with raw-materials and technology companies falling more than 1.5 percent. Leading the drop in materials, Mosaic Co. fell 7 percent to its lowest level since January 2009. The largest U.S. producer of potash fertilizer said it plans to reduce output as low crop prices continue to erode farmer demand for agricultural products.

Renewed worries about slower growth in China pressured commodity prices, sending Alcoa down 4 percent, and steel company Nucor Corp. sliding 2.9 percent. The Asian Development Bank reduced its China growth forecasts for the second time in just over two months. Newmont Mining Co. lost 6.3 percent as gold prices fell.

Semiconductors fell for a fourth straight session, the longest losing streak in a month. Applied Materials Inc., Micron Technology Inc. and Qorvo Inc. slumped more than 2.7 percent, while Intel Corp. fell 1.7 percent.

Biotech shares extended declines sparked yesterday after Democratic presidential candidate Hillary Clinton criticized high drug prices. Today she said she’d implement programs to force the industry to concede tens of billions of dollars a year in tax breaks, lower prices and increase research spending. Celgene Corp. and Mylan NV paced the slide in the Nasdaq Biotech Index, falling more than 1.2 percent.

Among consumer discretionary shares, the influence of the Volkswagen scandal was visible. Parts supplier BorgWarner Inc. dropped 7.6 percent, the most in four years, and Delphi Automotive Plc fell 3.6 percent. CarMax Inc. lost 4.7 percent, its biggest drop in a year, even after the used-car retailer’s quarterly profit exceeded analysts’ estimates.

Weakness in homebuilders also weighed on consumer stocks. An S&P gauge of builder shares fell 2.7 percent, the most since Aug. 25. Lennar Corp., PulteGroup Inc. and Toll Brothers Inc. slid at least 2.2 percent.

Goldman’s Blankfein

Goldman Sachs Group Inc. lost 2 percent, ranking as the second-worst performer in the Dow. Chief Executive Lloyd Blankfein said he has a “highly curable” form of lymphoma and will undergo chemotherapy over the next several months. Among financial stocks in the S&P 500, Morgan Stanley and BlackRock Inc. were among the biggest losers, down more than 2.5 percent. The KBW Bank Index sank 1.3 percent on its way to a four-week low.

The Dow Jones Transportation Average fell 2.5 percent, its biggest slide since Aug. 24. Kirby Corp., which operates a fleet of inland tank barges that transport commodities such as industrial chemicals, fell 4.1 percent. Railroads Kansas City Southern and Norfolk Southern Corp. lost more than 2.7 percent. A Bloomberg gauge of U.S. airlines slid 3.1 percent, the most in a month.

Staples Inc. and Office Depot Inc. both tumbled at least 4.1 percent, hurt by renewed concerns that the Federal Trade Commission will block the companies’ merger plan.

Weatherford International Plc jumped 11 percent after the oil-services company scrapped a proposed $1 billion sale of shares and convertible debt. The sale was announced yesterday, and Weatherford’s share price tumbled 17 percent in response.

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