U.S. Stocks Tumble as Russell 2000 Enters CorrectionJeremy Herron and Callie Bost
U.S. stocks tumbled, pushing the Russell 2000 Index into a correction, while Treasuries rallied as the Federal Reserve held its course to end bond-buying this month amid growing signs of economic weakness in Europe.
The Standard & Poor’s 500 Index declined 1.3 percent at 4 p.m. in New York to the lowest since Aug. 12. The Russell 2000 dropped 1.5 percent and is 10 percent below its March record. The Dow Jones Transportation Average sank the most since February as airlines retreated after the first reported U.S. case of the Ebola virus. The Stoxx Europe 600 Index lost 0.8 percent. The rate on 10-year Treasury notes sank 10 basis points to 2.39 percent. Brent crude fell to its lowest level in more than two years.
Euro-area factories reduced prices by the most in more than a year and German manufacturing shrank, underlining the mounting challenge facing policy makers before the central bank meets tomorrow. U.S. manufacturing cooled in September following the strongest rate of growth in three years, while companies accelerated hiring for the first time in three months. A person familiar with German government policy said Russia risks an escalation of sanctions. Hong Kong’s pro-democracy protests swelled for a sixth day.
“The headwinds have come to the forefront and investors are starting to recognize that,” Randy Bateman, chief investment officer of Huntington Asset Advisors, which manages about $2.8 billion, said by phone. “You’ve got a whole bunch of geopolitical situations and you have concerns about economic weakness. We’ve always relied on the Fed priming the pump. This is the month the pump dries up so now people are focused on these other issues.”
The Fed is set to end later this month asset purchases that have helped nearly triple the S&P 500 during the bull market at a time when conflict between Ukraine and Russia threatens to tip Europe back into a recession and economists forecast growth from Japan to China will slow every year through 2016.
More than $200 billion in assets was erased from U.S. equity markets during the past three months, as stronger economic data fueled concern the Fed may also raise interest rates sooner than anticipated. The U.S. economy expanded in the second quarter at the fastest rate since 2011.
The S&P 500 has fallen three straight days and is down 3.2 percent since closing at a record on Sept. 18. The index added 0.6 percent last quarter, its seventh gain and longest streak since 1998. The gauge has not fallen four straight days this year, and has not slid more than 10 percent in three years.
Among stocks moving today, Sarepta Therapeutics Inc. led makers of experimental Ebola treatments higher following the first reported U.S. case of the deadly disease. That also sent carriers from American Airlines Group Inc. to Delta Air Lines Inc. lower.
Shares held by Relational Investors LLC tumbled an average of 2.5 percent amid news that the firm will dissolve current funds by the end of next year, according to people familiar with the plans. Hewlett-Packard Co., the firm’s top holding in August according to a regulatory filing, slid 2.6 percent.
The Russell 2000 tumbled 7.7 percent in the third quarter, its worst performance in three years, as investors sold speculative stocks.
The Russell has seen some of the heaviest selling after the index beat the S&P 500 by more than 70 percentage points and traded at more than 60 times annual earnings after the first 5 1/2 years of the bull market. Thee small-cap gauge is down 6.7 percent this year, while the S&P 500 has advanced 5.3 percent.
“The market is showing nervousness just over the last couple weeks as we’ve been having this choppiness, especially in smaller companies,” Tim Courtney, who helps oversee about $1.3 billion as chief investment officer of Exencial Wealth Advisors, said in a phone interview from Oklahoma City. “Small caps have historically led the way down. This could be the beginning of a normal 10 percent correction.”
While the Institute for Supply Management’s index dropped to 56.6 from 59 in August, the gauge’s average over the past three months was the highest since early 2011, figures from the Tempe, Arizona-based group showed today.
The Fed has been analyzing U.S. economic reports for clues on whether growth will withstand the end of quantitative easing and higher interest rates.
Concern that the central bank will be forced to move forward the timing of any rate increase bolstered the greenback last quarter. The Bloomberg Dollar Spot Index, which measures the currency against a basket of 10 peers, rallied 6.7 percent in the July-September period, the most since 2008. The index was little changed today.
The dollar rose 0.1 percent to $1.26183 per euro. It touched $1.2571 yesterday, the strongest level since September 2012. The greenback dropped 0.6 percent to 108.95 yen after rising earlier to to 110.09 yen, the highest since Aug. 25, 2008.
Treasuries rallied the most in six weeks as yields higher relative to most Group of Seven nations increased demand from investors worldwide concerned global growth is stalling.
Benchmark 10-year notes yielded almost the most versus their German counterparts since 1999 after the dollar touched a two-year high versus the euro yesterday.
“We have this quest for growth and central banks are unable to produce it,” said Richard Gilhooly, an interest-rate strategist in New York at TD Securities Inc., one of 22 primary dealers that trade with the Federal Reserve. “We have a global deflationary situation developing.”
The yields have gained versus bunds for a record nine quarters as the European Central Bank unveiled a series of stimulus measures to boost credit lending and combat the threat of deflation. The ECB is forecast to announce tomorrow details of its plan to buy asset-backed securities.
The ECB is on a mission to avert deflation as the euro region’s economic landscape deteriorates. Purchasing Managers’ Indexes from Markit Economic showed manufacturing also contracted in France, Austria and Greece, with a gauge for the 18-nation region pointing to near-stagnation. A separate report showed spillover to the U.K., with factory growth there at a 17-month low.
The Stoxx 600 fell today after climbing 0.4 percent last quarter, a fifth increase and the longest stretch since 2006. J Sainsbury Plc slumped to the lowest price in more than 11 years after saying it won’t see a return to growth in same-store sales this year. Orange SA fell 7 percent as Bpifrance sold a stake in the company for 580 million euros ($730 million).
Developing-nation stocks dropped for a fifth day and currencies slid amid prospects for higher U.S. interest rates. The MSCI Emerging Markets Index fell 0.9 percent to the lowest level since May.
The ruble weakened 0.2 percent versus a target basket of dollars and euros, a day after briefly crossing the level at which the central bank intervenes to halt declines.
Two officials with direct knowledge of the discussions said yesterday that Russia’s central bank is weighing temporary capital controls if outflows intensify. The central bank denied it’s considering such measures.
If separatists took the Donetsk airport or the city of Mariupol in an effort to create a land corridor in eastern Ukraine, the EU might impose additional sanctions, according to the official, who asked not to be named because he isn’t authorized to discuss the matter publicly. Russia has denied any involvement.
Russia’s economy will expand 0.5 percent next year, the International Monetary Fund said today, cutting its previous growth forecast in half.
The Brazilian real depreciated 1.3 percent and South Korea’s won dropped to a six-month low. Pro-democracy protests continued in Hong Kong with markets in the city and China shut for holidays.
Brazil’s Ibovespa sank 2.3 percent as a voter poll showing President Dilma Rousseff’s victory in this month’s election curbed bets that a new administration would reduce intervention in the economy and act to bolster growth.
Brent crude dropped to the lowest level in more than two years after Saudi Arabia cut its November official selling prices to all areas. West Texas Intermediate crude slipped to a 17-month low.
Brent for November settlement fell 51 cents, or 0.5 percent, to end the session at $94.16 a barrel on the London-based ICE Futures Europe exchange. It closed at the lowest level since June 28, 2012.
Nickel prices fell to a six-month low as inventories monitored by the London Metal Exchange extended an increase to a record. Aluminum tumbled the most in 14 months.