Stocks plunge, extending losses; Bond prices soar

In this Oct. 8, 2014 photo, an American flag flies in front of the New York Stock Exchange in New York. U.S. stocks are plunging in early trading Wednesday, Oct. 15, 2014, as traders flee risky assets. (AP Photo/Mark Lennihan)

A plunge in U.S. stocks deepened in afternoon trading Wednesday, sending the Dow Jones industrial average down more than 400 points and putting the index on track for its biggest loss in more than a year.

The decline came as investor fears of a global economic slowdown intensified after several weeks of turbulent market action.

The Dow plunged as much as 460 points following steep declines in Europe as investors sized up the latest batch of corporate earnings and some discouraging U.S. economic news. The Dow was heading for its biggest percentage drop since June 2013.

Traders dumped risky assets and parked their money in investments seen as relatively safe, such as U.S. government bonds. That pushed the yield on the 10-year Treasury note briefly below 2 percent, the lowest level in more than a year.

“It’s a function of the U.S. being the best house in a bad neighborhood,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. “There’s still uncertainty about economic growth, primarily on a global basis.”

The Dow recovered some of the ground it had lost in the first half-hour of trading then fell steadily again through the afternoon. By 2:47 p.m. Eastern time it was down 374 points, or 2.3 percent, to 15,941.

The Standard & Poor’s 500 index fell 43 points, or 2.3 percent, to 1,834. The Nasdaq composite dropped 85 points, or 2 percent, to 4,144.

All three indexes are now down for the year.

Bond prices soared as investors shifted money into safe-haven investments.

Early on, 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 afternoon 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 29 basis points in 5 minutes.”

Wednesday’s slide brings the stock market closer to a correction. That happens when a benchmark index like the S&P 500 falls 10 percent or more from a recent peak.

The S&P 500 hit its most recent peak of 2,011.36 on Sept. 18. It would have to close at 1,810.22 to mark a correction. The last time that happened was October 2011.

The correction threshold for the Dow is 15,551. The Nasdaq’s is 4,138. The Nasdaq traded below that threshold on Wednesday and could match the widely accepted definition of being in a correction if it closes below that point.

Parts of the market are already in correction, which has some analysts calling for caution. Small-company stocks, as measured by the Russell 2000 index, have fallen 12.8 percent since hitting a peak in July and are down 9.5 percent for the year.

Many market watchers say occasional corrections are a healthy phenomenon over the long term and give investors an opportunity to add to their holdings at a lower cost.

“That’s why it’ so important to stay invested at a time like this, rather than think it’s a time to get out,” said Kate Warne, an investment strategist at Edward Jones.

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 dropped sharply from 27.5 to 6.2 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 3.6 percent.

KeyCorp, Regions Financial, JPMorgan Chase and Citigroup were among the biggest decliners. Covidien led the slide among S&P 500 companies, falling $8.36, or 9.1 percent, to $83.96.

Bucking the trend were several energy companies, including Cabot Oil & Gas, Southwest Energy and EQT Corp. Cabot paced the gainers, rising 95 cents, or 3.3 percent, to $29.43.

Several homebuilders surged, getting a lift from the slide in the 10-year Treasury bond yield, which affects rate on consumer and business loans. A decline in the 10-year Treasury note yield should nudge mortgage rates lower, spurring home sales.

M/I Homes got the biggest boost among the builders, adding 43 cents, or 2.2 percent, to $19.65.

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 2.8 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.

U.S. crude slipped 23 cents to $81.61 a barrel.

___

AP Business Writer Ken Sweet contributed.

 

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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