(c) 2013, Bloomberg News.
(c) 2013, Bloomberg News.
NEW YORK — U.S. stocks fell, sending the Standard & Poor's 500 Index to a nine-week low, after Chinese equities entered a bear market amid concern a cash crunch will hurt growth and as investors weighed the impact of a possible reduction in the Federal Reserve's monetary stimulus.
Bank of America and Citigroup slid 3.1 percent as banks led losses. Apple fell 2.7 percent after Jefferies & Co. lowered the stock's price target amid a glut of unsold iPhones. Allergan tumbled 12 percent amid analyst downgrades. Vanguard Health Systems surged 67 percent after agreeing to be bought by Tenet Healthcare for about $1.8 billion.
The S&P 500 fell 1.2 percent to 1,573.09 at 4 p.m. in New York, the lowest since April 22. The Dow Jones Industrial Average slipped 139.84 points, or 0.9 percent, to 14,659.56. About 8.5 billion shares traded hands on U.S. exchanges, about 32 percent above the three-month average.
"Domestically, there's continued improvement in the economic data, but the broader macro fed policy issues are overshadowing that especially as we do not have much earnings visibility at this point and the international issues are outweighing the domestic improvements," Eric Teal, chief investment officer at First Citizens BancShares, which manages $5 billion in Raleigh, N.C., said in a phone interview. "People might be lightening up equity positions given the strong year-over-year gains."
The S&P 500 sank 2.1 percent last week, the most since April 19, after Fed Chairman Ben Bernanke said the bank may start paring stimulus measures as soon as September if the economy improves in line with its forecasts. The stimulus has helped fuel a rally in stocks worldwide, with the benchmark U.S. index surging 133 percent from its March 2009 low.
Global stocks fell on Monday, as Chinese equities entered a bear market as the CSI 300 Index of China's biggest companies tumbled 6.3 percent, the most since August 2009. The plunge took its loss from this year's peak to more than 20 percent. China's benchmark money-market rates last week climbed to a record as the central bank refrained from using open-market operations to ease a cash squeeze. The 10-year U.S. Treasury note was little changed after yields earlier spiked to 2.66 percent, the highest since 2011.
The S&P 500 followed global stocks lower, with the benchmark gauge slipping briefly below its 2007 closing high of 1,565.15. The index surpassed that peak in March, recovering all its losses from the financial crisis. It has fallen 3.5 percent in June, on course to snap a streak of seven monthly advances, the longest run since September 2009.
"Investors have been shaken by the concept of rising interest rates and a reduction in stimulus from the Federal Reserve, coupled with the uncertainty regarding effectively how robust the Chinese central banking system is," Ethan Anderson, senior portfolio manager for Rehmann Financial in Grand Rapids, Mich., said by phone. His firm manages about $1.5 billion. "We found ourselves in a headline-dependent environment, which is difficult for investors to function."
The S&P 500 trimmed an early drop of 2 percent Monday after Fed Bank of Dallas President Richard Fisher said investors shouldn't overreact to the central bank's plans to slow bond purchases.
Investors behaved like "feral hogs" after the Fed's comments last Wednesday, Fisher said in an interview with the Financial Times published Monday on its website. He reiterated in a speech in London his support for reduced bond buying this year if the economy makes the kind of progress officials are currently expecting.
"Fisher's comments seemed to dial back some of the negative rhetoric that people had in terms of Chairman Bernanke's comments last week," Michael James, a managing director of equity trading at Wedbush Securities in Los Angeles, said in a phone interview. "This remains a trader and sentiment-driven market that's susceptible to swings in either direction at the drop of hat."
Economic data this week could add to the case for the Fed to slow purchases. Reports on Tuesday may show U.S. durable-goods orders rose and house prices continued to recover, according to Bloomberg surveys of economists. Data last week showed sales of previously owned homes climbed in May to the highest level in more than three years and manufacturing improved in June.
The S&P 500 has fallen 5.8 percent since a record on May 21, the day before Bernanke first suggested he could cut stimulus if growth appears sustained. The slump ended the index's longest run in more than six years without a retreat of at least 5 percent, data compiled by Bloomberg show.
The gauge spent 149 days through Friday without incurring such a drop from a peak, the longest since a 173-day stretch ended Feb. 20, 2007, about eight months before the financial crisis sent the market plunging 57 percent.
While U.S. equity volatility reached a six-month high last week, expected stock swings are less than half as much as peaks in the last four years and traders are pricing in little increase for the rest of the year.
The Chicago Board Options Exchange Volatility Index jumped 10 percent to 18.9 for the week. Even after the gauge of options prices on the S&P 500 increased 67 percent since March, it would have to rise 134 percent more to reach its average high of 44 from 2009 to 2012, according to data compiled by Bloomberg. VIX futures expiring in six months trade only 10 percent higher than the index. The gauge added 6.4 percent to 20.11 on Monday.
All 10 of the S&P 500 main industries retreated as financial, industrial and materials shares tumbled more than 1.7 percent. Bank of America dropped 3.1 percent to $12.30 for the biggest decline in the Dow. Citigroup slipped 3.1 percent to $45.44.
Metal and coal producers retreated amid growing concern over the economic sustainability in China, the world's largest consumer of commodities from iron ore to coal. Declines accelerated after the U.S. Supreme Court agreed to consider reviving an Environmental Protection Agency rule that would curb emissions from coal-fired power plants, in a clash over the Obama administration's biggest air-quality effort.
Cliffs Natural Resources, the largest U.S. iron-ore producer, declined 7.6 percent to $15.88. Alpha Natural Resources, the biggest U.S. supplier of metallurgical coal, declined 8 percent to a record $5.05 and Peabody Energy slipped 7.2 percent to $14.85.
Apple dropped 2.7 percent to $402.54, the fifth straight decline for the stock. A glut of unsold iPhones prompted Jefferies & Co. analyst Peter Misek to lower its target price to $405 from $420. Apple shares have fallen 24 percent this year.
Allergan plunged 12 percent to $81.99. Deutsche Bank downgraded the maker of the Botox wrinkle treatment to hold from buy and Leerink Swann trimmed its recommendation to market perform from outperform.
Vanguard Health Systems jumped 67 percent to $20.70. Tenet will pay $21 a share in cash for the Nashville, Tenn.-based hospital operator and will assume $2.5 billion of Vanguard debt, the companies said in a joint statement. Tenet advanced 4.5 percent to $43.73 for the biggest gain in the S&P 500.
With assistance from Sofia Horta e Costa and Cecile Vannucci in London and Nikolaj Gammeltoft in New York.