U.S. stocks tumbled, giving the Standard & Poor’s 500 Index a four-day loss of 6.9 percent, amid investors’ concern that policymakers are running out of tools to avoid another global economic recession.
Caterpillar Inc. and DuPont Co. slumped at least 5.4 percent, pacing declines among companies most-tied to economic growth. Alcoa Inc. (AA) and Chevron Corp. (CVX) slid more than 4.7 percent as commodities erased this year’s gains on speculation that demand for energy and raw materials will slow. FedEx Corp. (FDX), operator of the biggest cargo airline and a proxy for the economy, lost 8.6 percent after cutting its profit forecast.
The S&P 500 fell 3 percent to 1,132.18 at 11:13 a.m. in New York, poised for the longest slump since Aug. 2. The Dow Jones Industrial Average lost 362.90 points, or 3.3 percent, to 10,761.94. The MSCI All-Country World Index slid 4.4 percent, extending a drop from its May 2 high to more than 20 percent.
“The storyline is that global growth is decelerating,” Mike Ryan, the New York-based chief investment strategist at UBS Wealth Management Americas, said in a telephone interview. His firm oversees $774 billion. “Financial stresses are rising and policymakers are finding few viable options to stabilize the real economy. When you’re concerned about recession risks, valuation takes a backseat.”
Between April 29 and Aug. 8, the S&P 500 fell 18 percent on concern about Europe’s debt crisis and an economic slowdown, closing within 29 points of a bear market, or a 20 percent drop. Since then, the index has rebounded 4.2 percent through yesterday.
Taking a Toll
The S&P 500 yesterday had its biggest drop in a month on the Federal Reserve’s assessment that the turmoil caused by Europe’s crisis is taking a toll on the economy. The Fed indicated willingness to do more to avoid a recession as it made the second move in as many months to lower borrowing costs. Stocks also fell as Moody’s Investors Service cut three U.S. banks.
“I don’t know how much further the market can go down,” David Kelly, chief market strategist for JPMorgan Funds in New York, said in a telephone interview. “The real problem is that policymakers keep on proposing solutions which either won’t be implemented or simply do not work. The Fed needs to express confidence on the economy itself.”
Global stocks fell on data that China’s manufacturing may shrink for a third month in September, the longest contraction since 2009, after a preliminary index of purchasing managers showed measures of export orders and output declined.
Jobless Claims
Stock futures extended losses after a Labor Department report showed that more Americans than forecast filed first-time claims for unemployment insurance payments last week as the labor market struggled to improve. Equities trimmed declines after an index of U.S. leading economic indicators increased more than forecast in August.
The Morgan Stanley Cyclical Index of companies most-tied to economic growth tumbled 4.2 percent. The Dow Jones Transportation Average decreased 2.7 percent. Caterpillar sank 5.4 percent to $75.10. DuPont declined 6.7 percent to $41.63. Alcoa slid 6 percent to $10.19, while Chevron sank 4.7 percent to $89.89.
FedEx tumbled 8.6 percent to $66.29. The company, which ships more packages by air than rival United Parcel Service Inc., has seen volume growth slow as demand for express shipments stagnates amid a weakening economic recovery. FedEx also has been spending more on jet fuel, whose average cost jumped about 48 percent in the period. The company typically has a two-month delay in recovering fuel costs through surcharges.
Banks Tumble
The KBW Bank Index slumped 2.5 percent. Bank of America Corp. (BAC) decreased 3.5 percent to $6.16. JPMorgan Chase & Co. (JPM) slid 3.3 percent to $29.34.
The ratio between indexes tracking utility and transportation stocks climbed to a two-year high, a signal the retreat in U.S. equities may not be over, said David A. Rosenberg of Gluskin Sheff & Associates Inc.
The Dow Jones Utilities Average advanced to 0.10 times the level of the Dow Jones Transportation Average, a multiple last seen on Sept. 2, 2009, according to Bloomberg data. The ratio reached the same level as it was in August 2007, Gluskin Sheff data show, amid outperformance by “recession proof” utilities over “economically sensitive” transports. That time, the Standard & Poor’s 500 Index peaked at an all-time high two months later.
“It’s characteristic of a bear market,” Rosenberg, Gluskin Sheff’s Toronto-based chief economist and strategist, said in a telephone interview yesterday. The stock market “is catching up with what the bond market has been saying for some time now -- that is, we’re heading toward an economic downturn.”
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