U.S. Stocks Drop as Weakening Economic Data Fuel Selloff

Chicago (Oct 15) U.S. stocks fell as weaker-than-forecast economic data reignited an equity rout and sent the Standard & Poor’s 500 Index to the lowest level since April.

Intel Corp., Microsoft Corp. and JPMorgan Chase & Co. sank more than 2.2 percent to lead losses in the Dow Jones Industrial Average. KeyCorp retreated 4.9 percent, the biggest drop in the S&P 500, after the lender’s quarterly revenue trailed analysts estimates. Bank of America Corp. sank 2.7 percent after revenue declined.

The S&P 500 sank 1 percent to 1,859.88 at 10:19 a.m. in New York. The index briefly erased its gains for the year before rebounding. It’s now up 0.6 percent for 2014. The Dow Jones Industrial Average lost 111.28, or 0.7 percent, to 16,203.91. The Nasdaq Composite Index sank 0.6 percent.

“The economy isn’t as strong as perhaps everyone thought,” Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $110 billion, said in a phone interview. “The concern here is that the weakness in Europe and Asia is going to be exported to the U.S. and our economy is going to be negatively impacted.”

Equities pared losses as federal funds futures showed the declining odds of September 2015 interest-rate increase. The S&P 500 fell as much as 2.2 percent during the day.

Rate Outlook

Rates on federal fund futures show the probability of a September rate increase fell to 30 percent, down from 46 percent yesterday and 67 percent two months ago, according to data compiled by Bloomberg. The implied yield on the December 2015 Eurodollar contract, the world’s most actively traded futures, traded at 0.615 percent, down from 0.8 percent yesterday and 1.065 percent a month ago.

Retail sales in the U.S. dropped more than forecast in September, decreasing 0.3 percent after a 0.6 percent gain in August that was the biggest in four months, Commerce Department figures showed. The median forecast of 81 economists surveyed by Bloomberg called for a 0.1 percent decline.

Another report today showed manufacturing in the Federal Reserve Bank of New York’s region slowed more than projected in October. The bank’s so-called Empire State index dropped to 6.2 this month from an almost five-year high of 27.5 in September. Readings greater than zero signal growth.

“You have more concerns about Ebola, Empire manufacturing and retail sales numbers were quite poor, and even some earnings have been disappointing,” Matt Maley, an equity strategist at Miller Tabak & Co LLC in Newton, Massachusetts, said in a phone interview.

Traders work on the floor of the New York Stock Exchange during early trading on Oct. 14, 2014.

Financial Stress

Concern about the spread of Ebola has also started to affect investor psychology, contributing to a 17 percent decline in U.S. airline stocks since a high in September spurring intermittent plunges in broader averages. A second health-care worker in Texas tested positive after caring for an Ebola patient, opening new questions about oversight lapses.

Financial stress is rising, according to gauges maintained by the Federal Reserve Banks of Chicago and St. Louis, as well as measures compiled by Goldman Sachs Group Inc. and Bank of America Merrill Lynch. The deterioration reflects tightening credit conditions for companies, higher stock-market volatility and a stronger dollar.

Bad Mood

“The market was already in a bad, bad mood ahead of the largely known weakness in retail sales this morning,” Andrew Wilkinson, chief market analyst at Interactive Brokers LLC, wrote in a note today. “Even the best report of the year would have failed to make much impact on investor sentiment captivated by signs of the bear and other factors such as the spread of the Ebola virus.”

In other markets, Greece’s Athens Stock Exchange Index plunged 6.3 percent, the biggest drop since 2012, amid concern the government’s plan to end its bailout early will leave the nation unable to raise funding.

Investors are watching earnings for signs of the economy’s strength. More than 50 S&P 500 companies are releasing earnings this week, according to data compiled by Bloomberg. Profit for the members of the index probably rose 4.8 percent in the third quarter and sales increased 4.2 percent, analysts projected. American Express Co. and EBay Inc. will report after the close.

Source:  Bloomberg