Commodity Shares Rout Leads S&P 500 to Biggest Drop in 2 Monthsby
S&P 500 has worst week since August, bucking December trend
DuPont, Dow Chemical shares fall after `merger of equals'
The Standard & Poor’s 500 Index fell the most in more than two months amid a deepening retreat in commodities, and as investors prepare for next week’s Federal Reserve interest rate decision.
Equities extended a weekly selloff as crude dropped to the lowest level since 2008 in London on expectations for a continuing supply glut. A measure of volatility jumped more than 60 percent this week, the most since August. DuPont Co. and Dow Chemical Co. slipped at least 2.8 percent after jointly announcing the largest-ever chemical industry merger.
The S&P 500 dropped 1.9 percent to 2,012.37 at 4 p.m. in New York, posting its first weekly drop in four and its worst since August. The Dow Jones Industrial Average sank 309.54 points, or 1.8 percent, to 17,265.21. The Nasdaq Composite Index lost 2.2 percent. About 8.3 billion shares traded hands on U.S. exchanges, 16 percent above the three-month average.
“I think there’s a lot of uncertainty with global growth that is just factoring into the year-end positioning,” said Kevin Kelly, the New York-based chief investment officer at Recon Capital Partners. “We’ve seen a broad-based selloff today. There’s nowhere to hide out there and that’s why this is so brutal. It seems like a redux of August when the Chinese actually devalued their currency in anticipation of a Fed rate hike and stronger dollar.”
Stocks have stumbled this month, proving so far an exception to a historical trend of a strong December performance in global equities, with investors rattled before the Fed is widely expected to raise rates on Wednesday for the first time in nearly a decade. The Chicago Board Options Exchange Volatility Index surged Friday to a two-month high, reflecting increased anxiety amid speculation the shift in policy will roil markets.
The measure of market turbulence known as the VIX jumped 26 percent to 24.39, the biggest gain since Aug. 24. The gauge rose 65 percent for the week, also the most since the summer market swoon.
“There’s no question with the VIX certainly trading through 20 this morning, there’s a lot more volatility and that’s something that investors need to be prepared for,” Julian Emanuel, executive director of U.S. equity and derivatives strategy at UBS Securities LLC in New York, said Friday on Bloomberg television.
Traders are pricing in a 72 percent chance that next week’s Fed meeting will confirm Chair Janet Yellen’s belief that the world’s biggest economy is strong enough to cope with an increase in borrowing costs. That’s down from 80 percent earlier this week as investors are caught between optimism about the U.S. and concern that weakness in China and the resulting tumble in commodities will damp global growth prospects.
As investors look for further confirmation in the Fed chair’s faith in U.S. growth, data today showed retail sales climbed in November by the most in four months. Separate data showed wholesale prices rose last month by the most since June, while another report said consumer confidence climbed in December to the highest level in four months.
“The economic data we’ve seen and some mergers again this week -- that’s painting a pretty good picture for equities, but investors are growing pretty skittish about maybe the ramifications of what happens when the Fed increases,” said Sean Lynch, co-head of global equity strategy for Wells Fargo Investment Institute. “We think equities take that pretty well like they have in the past.”
The S&P 500 is still heading for its strongest quarter in two years, right after its worst since 2011. Following an 8.3 percent surge in October, the benchmark has made little headway, going 27 sessions without back-to-back gains. The record is 28 days set back in 1970, equaled in April 1994 and again last March.
While the selloff in crude has been a driver lately, moves in equities have also been influenced by technical levels on the S&P 500. Shares extended gains Thursday above the gauge’s average prices during the past 50 and 200 days, and then erased much of the day’s advance after failing to hold those levels. The benchmark closed yesterday below the 50-day moving average for the first time since October, and declines today were extended after a drop below its 100-day average.
Energy companies in the main U.S. equity index lost 3.4 percent Friday, bringing their slide this month to 11 percent as crude prices slumped to levels not seen since the global financial crisis. All 40 members of the energy sector fell, led by Southwestern Energy Co., which dropped 14 percent, the most in seven years, and Williams Cos.’s 11 percent tumble. West Texas Intermediate crude slipped 3.1 percent to $35.62 a barrel.
All of the benchmark’s 10 main industries slumped, with five falling more than 2 percent. Raw-materials lost 2.7 percent, with confirmation of the largest-ever deal in chemicals contributing to the decline. Dow Chemical and DuPont paced the slide, giving back portions of their gains Wednesday after news of the merger talks first broke.
The $130 billion deal comes after two years of pressure from activist investors who argued that shareholders of both companies would realize greater value if they were broken up. The Bloomberg Commodities Index capped its worst week since July.
Consumer-discretionary stocks, the year-to-date leader in the benchmark gauge, slipped 2.3 percent to a nearly one-month low. GameStop Corp. fell 6.3 percent, down for a third straight day to a two-year low after industry data on video-game software sales disappointed. Staples Inc. and Wynn Resorts Ltd. also tumbled more than 4.6 percent.
Banks tumbled after their first advance in four days, as the yield on the U.S. 10-Year Treasury note had its steepest drop since September. The KBW Bank Index fell 2.4 percent, the most in two months. State Street Corp. lost 4.2 percent, while Bank of America Corp. and Citigroup Inc. dropped at least 2.7 percent.
Among other financial companies, asset managers fell after Martin Whitman’s Third Avenue Management took the rare step of freezing withdrawals from a $788 million credit mutual fund on Dec. 9. BlackRock Inc. slumped 6.5 percent, the biggest one-day drop since 2011. Franklin Resources Inc. fell 6 percent to a three-year low. T. Rowe Price Group Inc. and Legg Mason Inc. lost more than 3.4 percent
Apple Inc. sank 2.6 percent, its second drop of at least 2 percent in three sessions to weigh the most on the technology group. Facebook Inc. retreated 3.1 percent, while Cisco Systems Inc. and Microsoft Corp. declined more than 2.1 percent.
Whole Foods Market Inc. rose 8.6 percent, the most in the S&P 500 and its best advance in 13 months, after an analyst said sales trends are tracking above consensus expectations. The shares are rebounding from a four-year low reached on Nov. 30.
CSX Corp. added 4.1 percent to lead a climb among a group of railroads in the S&P 500. Norfolk Southern Corp. gained 2 percent on news that Warren Buffett’s Berkshire Hathaway Inc. is open to making a competing bid for the company, which is the target of a $27 billion takeover effort by Canadian Pacific Railway Ltd.
Corning Inc. rose 5.6 percent, the strongest climb in two years, after an agreement to sell its stake in Dow Corning Corp. to Dow Chemical. Dow will become the full owner of the 72-year-old joint venture that makes silicones used in tires.