By Inyoung Hwang and Katie Brennan
U.S. stocks fell, giving the Standard & Poor’s 500 Index its biggest two-day loss since 2011, as global equities tumbled after the Federal Reserve said it may phase out stimulus and China’s cash crunch worsened.
All 10 groups in the S&P 500 declined at least 1.8%, as consumer and energy shares led losses. Newmont Mining Corp. dropped 7.7% as gold plunged to the lowest in more than 2 1/2 years. An index of homebuilders fell the most in a year, as PulteGroup Inc. and D.R. Horton Inc. tumbled more than 9.1%.
The S&P 500 sank 2.3% to 1,591.54 at 3:16 p.m. in New York. The benchmark index has lost 3.7% over two days, the most since November 2011. The Dow Jones Industrial Average erased 332.30 points, or 2.2%, to 14,779.89. The gauge dropped the most since November. Trading of S&P 500 companies was 38% higher than the 30-day average.
“The Fed is moving to have a less easy policy because the economy is strengthening,” Jason Benowitz, who helps manage about $4.5 billion at Roosevelt Investment Group Inc. in New York, said by telephone. “That in itself is positive, but some of the effects from tapering include increases in long-term bond yields and a strengthening dollar. Both those things raise the specter of potential dislocations in fixed income and emerging markets. These events can affect U.S. equity markets.”
The MSCI All-Country World Index slipped 3.4% today, the most in 19 months, as Asian stocks tumbled 4.1% and European shares retreated 3%, the biggest losses for both regions since 2011. China’s benchmark money-market rates climbed to records as the central bank refrained from using reverse- repurchase agreements to address a cash crunch in the world’s second-biggest economy.
The U.S. 30-year bond yield climbed above 3.5% for the first time since September 2011. The dollar strengthened against 15 of its 16 major peers.
Bond Purchases
The S&P 500 yesterday fell the most this month after Fed Chairman Ben S. Bernanke said the central bank may end bond purchases by the middle of next year if the U.S. economy improves in line with Fed projections. His speech followed a two-day Federal Open Market Committee meeting in Washington.
“If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year,” Bernanke said, referring to the FOMC’s outlook for economic growth, further labor-market gains and inflation accelerating toward a 2% goal.
The S&P 500 has declined 4.7% since its May 21 high on concern the Fed will scale back quantitative easing. The Fed’s record low interest rates and bond purchases have helped fuel a rally in stocks that lifted the S&P 500 as much as 147% from its bear-market low in 2009.
Housing Data
Data today showed sales of previously owned U.S. homes climbed more than forecast in May to the highest level since November 2009, and the Fed Bank of Philadelphia’s general economic index increased. Another report showed more Americans than forecast filed applications for unemployment benefits, while an index of U.S. leading indicators rose less than projected in May.
The market “feels like Bernanke will be there forever with the safety net and it’s just not true,” Uri Landesman, president of New York-based hedge fund Platinum Partners, which manages about $1.2 billion, said by phone. “There’s going to be a period of disappointment about that across asset classes.” He said, “We’re going to have a very volatile second half of 2013.”
Bond Purchases
Bernanke will cut the Fed’s $85 billion in monthly bond purchases by $20 billion at the Sept. 17-18 policy meeting, according to 44% of economists in a Bloomberg survey.
The survey of 54 economists followed Bernanke’s press conference yesterday, in which he mapped out a timetable for an end to one of the most aggressive easing strategies in Fed history. His remarks prompted economists to predict a faster reduction in purchases: in a June 4-5 survey, only 27% of economists forecast tapering would start in September.
The Chicago Board Options Exchange Volatility Index, or VIX, rallied 22% to 20.30, climbing above 20 for the first time this year. The gauge has jumped 80% since hitting a six-year low in March. The equity volatility gauge is trading at the biggest premium relative to its 200-day moving average this year.
More than 21 stocks fell for each that rose in the S&P 500, putting the index on track for the broadest decline in two months, according to data compiled by Bloomberg. Consumer and raw-material companies erased more than 2.6% among S&P 500 groups. Newmont lost 7.7% to $29.44 as gold fell below $1,290 an ounce to the lowest price since September 2010.
Household Goods
Producers of household goods headed for the biggest two-day decline since 2008 as Kraft Foods Group Inc. and Avon Products Inc. tumbled more than 6.1%. The industry fell 3%, paring gains for the year to 12%.
The S&P Supercomposite Homebuilding Index plunged 7.9%, the most in a year. PulteGroup fell the most in the S&P 500, losing 10% to $18.60. D.R. Horton dropped 9.1%, the most in a year, to $21.31.
Walt Disney Co. fell 3.7% to $61.98 for the largest decline in the Dow, as all members of the 30-stock gauge slid. Intel Corp. dropped 3.5% to $24.12.
Ebix, GameStop
Ebix Inc. sank 45% to $10.76 as Goldman Sachs Group Inc. yesterday terminated an agreement to buy Ebix for $20 a share after federal prosecutors began an investigation of the software company. The U.S. Attorney in Atlanta wrote in a letter that it was probing allegations of intentional misconduct, Ebix said in a statement.
GameStop Corp. added 6.6% to $41.07, its highest level since September 2008. Microsoft Corp. removed restrictions on reselling, trading and lending used games for its Xbox One home entertainment unit. Pre-owned games, which GameStop customers trade in for new versions, were 31% of the largest video-game specialty retailer’s first-quarter revenue.
Sprint Nextel Corp. added 1.4% to $7.10. The third- largest U.S. wireless carrier raised its bid to acquire the approximately 50% of Clearwire Corp. it doesn’t already own. The proposal of $5 a share topped an offer from Dish Network Corp. by 14%.
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