U.S. Stocks Drop as Energy Weighs Amid Selloff in Commodities

  • Equities extend slide as crude falls below $40 a barrel
  • Fed Chair Yellen signals confidence in economic outlook

U.S. stocks fell as tumbling oil prices sparked a broader selloff in equities, while Federal Reserve Chair Janet Yellen laid the groundwork for a December interest-rate boost by signaling increased confidence in the economic outlook.

Equities continued a pattern of alternating between gains and losses that led the S&P 500 in November to its narrowest monthly move in six years. Energy producers today dropped the most in two months as crude fell below $40 a barrel for the first time since August, and raw-material shares had their biggest slide in three weeks. Technology companies erased early gains as Qualcomm Inc. and Yahoo! Inc. trimmed their rallies.

The Standard & Poor’s 500 Index declined 1.1 percent to 2,079.51 at 4 p.m. in New York, reversing yesterday’s 1.1 percent surge to open the month. The Dow Jones Industrial Average lost 158.67 points, or 0.9 percent, to 17,729.68. The Nasdaq Composite Index dropped 0.6 percent after earlier rising as much as 0.4 percent. About 7.4 billion shares traded hands on U.S. exchanges, 4 percent above the three-month average.

“Yellen didn’t say anything miraculous that’s pushing the market down,” said Yousef Abbasi, global market strategist at JonesTrading Institutional Services LLC in New York. “We floated up yesterday really on just air and seasonality dictating that December is a higher month. With the combination of the meltdown in commodities we’re seeing today, the Euro CPI number sending the U.S. dollar higher, the data with regard to employment and Yellen’s tone, reality is setting in here.”

The S&P 500 extended losses in afternoon trading as crude’s decline accelerated before an OPEC meeting Friday. As three days of economic events likely to set the course for global markets into 2016 kicked off, a renewed rout in crude distracted traders from their focus on the looming divergence in monetary policy as OPEC has shown few signs it will vote to trim output. The Bloomberg Commodity Index fell the most in three months.

In a speech delivered at the Economic Club of Washington, Fed Chair Yellen said she’s increasingly confident that the economy is growing sufficiently to achieve labor-market improvement and higher inflation. She also warned that waiting too long to end the era of near-zero interest rates could force the central bank to tighten too quickly, which would risk disrupting financial markets and the six-year expansion.

Fed officials have been trying to gauge whether the economy is headed toward their goals and can sustain growth as rates increase. Atlanta Fed President Dennis Lockhart said earlier today he favors raising rates this month, absent any information that “drastically” changes the economic outlook. San Francisco Fed President John Williams joined Yellen in warning of risks in delaying liftoff. The Fed chair is scheduled to testify Thursday on the outlook before Congress’s Joint Economic Committee.

In a speech Tuesday night, Fed Governor Lael Brainard urged her colleagues at the central bank to move cautiously as they raised rates and to expect the Fed’s benchmark to top out at a lower level than in previous economic expansions. Traders are pricing in 72 percent odds the Fed will liftoff when its next two-day meeting concludes on Dec. 16.

ECB, Jobs

Meanwhile, major central bank policies are set to diverge as European Central Bank President Mario Draghi has been priming markets for action since October. Economists surveyed by Bloomberg unanimously predict the ECB will boost stimulus again at its meeting tomorrow, while the bank is less than halfway through a 1.1 trillion-euro ($1.2 trillion) bond-buying program.

Before the government’s jobs report on Friday, data today showed U.S. private payrolls grew more than expected, with companies adding 217,000 workers in November in a sign the labor market continues to strengthen. The Fed’s Beige Book survey said the economy expanded modestly across most of the U.S. in October and November amid rising consumer spending.

The S&P 500 has rebounded 11 percent from its low in August on growing confidence that the economy is sturdy enough to handle higher borrowing costs. The benchmark is up 1 percent for the year, and has alternated between gains and losses over the last 12 sessions, the longest such streak since 2013. The gauge hasn’t had back-to-back advances since Nov. 3.

The Chicago Board Options Exchange Volatility Index added 8.5 percent Wednesday to 15.91, wiping out most of yesterday’s 9 percent slide to a three-week low. The measure of market turbulence known as the VIX finished November up 7 percent, its first monthly increase since a record jump in August.

Broad Selloff

All of the S&P 500’s 10 main industries fell, an about-face after yesterday’s across-the-board gains, with six groups sinking more than 1 percent. Energy lost 3.1 percent and utilities dropped 2.2 percent. Technology shares sagged 0.6 percent after earlier rising as much as 0.5 percent.

Energy companies retreated for the first time in three days as West Texas Intermediate crude fell 4.6 percent amid ample stockpiles and signs of discord as ministers from the Organization of Petroleum Exporting Countries arrive in Vienna to discuss production policy.

Kinder Morgan Inc. dropped 7.9 percent to all-time low, sliding more than 4 percent for a second day after the largest U.S. pipeline owner had its credit outlook lowered after agreeing to increase its stake in an affiliate that Moody’s Investors Service said is at risk of default. Oneok Inc. and Murphy Oil Corp. fell at least 6.7 percent, while Exxon Mobil Corp. sank 2.9 percent, the most in the Dow.

NRG Energy tumbled 13 percent, the most in the S&P 500, to an 11-year low. The company said it’s selling two generating stations for $138 million as part of its “asset rebalancing program.” Citigroup Inc. yesterday initiated coverage of the shares with a sell rating.

Qualcomm gained 5.2 percent, paring an earlier 8.4 percent gain, after signing a patent licensing agreement with Chinese smartphone company Xiaomi. Yahoo rose 5.8 percent, the best performer in the S&P 500, as the company was said to consider a potential sale of its main Internet businesses.

Before it's here, it's on the Bloomberg Terminal.