Stocks are plunging Wednesday as traders dump risky assets and park their money in investments seen as relatively safe, such as U.S. government bonds.
The Dow Jones industrial average dropped 440 points, or 2.7 percent, to 15,873 as of 1:25 p.m. Eastern time Wednesday.
Additional Images
The Standard & Poor’s 500 fell 53 points, or 2.9 percent, to 1,823. The Nasdaq composite fell 104 points, or 2.5 percent, to 4,122.
The Dow is on pace for its worst drop since August 2011.
All three indexes are now negative for the year. The S&P is down 9 percent from its record high reached Sept. 18. That’s close to the 10 percent drop that market watchers refer to as a “correction.”
Bond prices soared as investors shifted money into safe-haven investments.
Early on Wednesday, the yield on the 10-year Treasury note plunged to 1.91 percent from 2.20 percent the day before, or 29 basis points, a huge move. It recovered to 2.01 percent in midday trading. Bond yields fall when their prices rise.
“It typically takes weeks for 10-year Treasurys to move 29 basis points,” noted Tom Di Galoma, head of fixed income rates in New York at ED&F Man Capital. “Today it moved 25 basis points in 5 minutes.”
Wednesday’s slide brings the stock market closer to a correction. That’s a drop of 10 percent or more, something that hasn’t happened since October 2011.
The S&P 500 would need to fall to 1,810 to hit correction territory. For the Dow, that’s 15,551. The Nasdaq’s correction threshold is 4,138.
Even if a correction occurs, it’s not necessarily a bad thing. Market watchers consider them necessary for the long-term health of the market.
“Valuation has improved here with this pullback,” Sandven said.
Stocks have been declining for nearly a month as investors have grown increasingly nervous about whether global growth is slowing. While the U.S. economy remains in recovery mode, investors are concerned that corporate earnings growth will slow this year and next due to a slowdown in Europe and, to a lesser degree, China.
Investors got more discouraging news early Wednesday, when the Commerce Department reported that retail sales declined 0.3 percent in September from the previous month. Purchases of autos, gasoline, furniture and clothing slowed.
Retail sales have risen 4.3 percent over the past 12 months, slightly below their historical pace.
A snapshot of manufacturing activity didn’t bolster optimism.
The Federal Reserve Bank of New York’s Empire State Manufacturing index fell 6.2 percent in October as new orders shrank and shipments barely rose. The latest reading marks the slowest pace of growth in six months.
All 10 sectors in the S&P 500 declined, led by financial stocks, which slid 2.9 percent.
Bank of America, Regions Financial, and Citigroup were among the biggest decliners. KeyCorp led the slide among S&P 500 companies, falling $1.13, or 8.8 percent, to $11.76, after reporting earnings and revenue that fell short of what analysts were looking for.
Bucking the trend were several energy companies, including Cabot Oil & Gas, Southwest Energy and EOG Resources. Cabot paced the gainers, rising $1.37, or 4.8 percent, to $29.84.
As more companies report earnings over the next couple of weeks, investors should get a better read of the impact that the economic situation overseas will have on U.S. companies.
In overseas market action, traders worried that Europe might relapse into recession.
France’s CAC 40 sank 3.6 percent and Germany’s DAX lost 2.9 percent. Britain’s FTSE 100 fell 2.3 percent. Greece’s stock index plunged 6.3 percent on concerns that the Greek government could collapse next year, putting its bailout program in danger. The index fell 5.7 percent the previous day.
In Asia, Japan’s Nikkei 225 stock average closed up 0.9 percent, while Hong Kong’s Hang Seng added 0.4 percent. China’s Shanghai Composite rose 0.6 percent and Seoul’s Kospi fell 0.2 percent after the central bank cut its growth forecasts for this year and next. Markets in Southeast Asia, Australia and New Zealand were higher.
U.S. crude rose 5 cents to $81.89 a barrel.
Send questions/comments to the editors.
