Market Watch: US Stocks Lower As Investors Move Into Safer Havens
By Jonathan Cheng
NEW YORK (MarketWatch) — Investors sent U.S. stocks to a broad and sharp decline as they snapped up safe-haven Treasurys, fearing a protracted and uncertain recovery.
The Dow Jones Industrial Average fell 86 points, or 0.9%, to 10089 in late afternoon trading, on track for its fourth-straight decline. Earlier, the measure briefly fell below 10000. The Nasdaq Composite Index fell 1.1% to 2136 and the Standard & Poor’s 500-stock index slipped 1% to 1058.
Investors followed a global move into safer assets, with a rally in the Treasury market pushing the yield on the 10-year note down to just below 2.50% after briefly touching its lowest level since March 2009. An auction for two-year Treasurys was heavily bid, sending the yield to a record auction low of 0.495%. The dollar lost ground against some other higher-yielding currencies, and investors moved into the yen.
Volatility increased, with the Chicago Board Options Exchange’s volatility index, or VIX, rising as much as 12% to reach its highest point since early July. The VIX was recently up 6.1% on the day.
“If people had confidence, they wouldn’t be pouring money into Treasury securities yielding nothing, and paying more than $1,200 for an ounce of gold,” said Morris Mark, president of Mark Asset Management. “They’re saying, ‘I don’t care if I get no real rate of return, just give me my money back.’ There’s a total lack of confidence…There’s a concern here that the strength of the world economy is not going to be able to get us out of this.”
The moves came after data showed U.S. existing-home sales plunged a record 27.2% to their lowest level in 15 years in July as inventories soared. The report painted a grim picture for the housing market absent government support in a stubbornly sluggish economy.
Tyler Vernon, principal and portfolio manager at Biltmore Capital Advisors, said his firm is increasing its prediction for the likelihood of a double-dip following the report, which he described as “sort of a total disaster.”
“For 90% of Americans, their largest investment is their home, and with the continued distress around housing they’re continuing to feel less wealthy and to spend less,” Vernon said. “It gets us pretty nervous about what we’re going to start seeing when data comes out on consumer spending for right now.”
The dollar hit a fresh 15-year low against the yen as investors probed the determination of Japanese authorities to stem their currency’s advance. The euro also hit a nine-year low against the yen, and the Nikkei Stock Average sank into bear territory to a 15-month low below 9000.
Stocks also fell in other overseas markets. The Stoxx Europe 600 index closed down 1.7% at 249.44. The U.K.’s FTSE 100 index fell 1.5% at 5155.95, France’s CAC-40 index ended down 1.7% at 3491.11 and Germany’s DAX fell 1.3% to 5935.44.
Ireland skidded worse than most European markets, falling 5.6% after construction company CRH, the biggest stock in the Dublin ISEQ, reported a profit warning and fell 17%. Sovereign credit insurance costs also rose for euro-zone periphery countries, with Ireland’s costs near their highs for the year. Portugal also saw a spike in credit insurance costs, putting its scheduled bond auction Wednesday in focus.
Classic safety plays performed well, with bunds and the Swiss franc rallying. Yields on 10-year bunds fell to 2.11%. The dollar fell nearly 1% against the franc and the euro hit a fresh record low against the Swiss currency.
Crude-oil futures slumped, dropping 2% to below $72 a barrel, while copper also declined sharply, shedding 1.8%. Gold edged up.
The activity comes as investors have grown increasingly concerned about the global economy, reflected in the Dow’s nearly 4% drop for the month. Despite strong second-quarter earnings and a recent uptick in merger-and-acquisition activity, economic data have been disappointing.
The market is particularly jittery about the government’s second reading of second-quarter economic growth due Friday. That report is expected to show a slowdown in U.S. economic growth.
Investors are also apprehensive about the Federal Reserve’s annual meeting set for Friday and Saturday, after a Wall Street Journal report pointed to an ongoing discussion at the central bank over what to do next, if anything, about America’s weak recovery and low inflation.
“That’s got the market unnerved a bit,” said Quincy Krosby, chief market strategist at Prudential Financial. “You don’t want to hear that they’re unsure of how to pull us out of this.”
Decliners handily outpaced gainers in NYSE Composite volume, with more than 80% of the volume to the downside. The volume was thin, with about 3.4 billion shares having changed hands in NYSE Composite trading shortly with less than an hour to go, set to undershoot the daily average this year of 5.1 billion shares.
The materials sector led the S&P 500’s drop as investors fretted about how demand for metals could be impacted by economic weakness. AK Steel dropped 4.6%, U.S. Steel declined 3.7% and Alcoa shed 2.6%.
The health-care sector was also weak, weighed down by a 10% tumble in Medtronic. The medical-device giant’s fiscal first-quarter revenue surprisingly fell and the company cut its earnings and sales forecasts for the year.