Tags: stocks | Europe | IMF | Dow

Stocks Fall to Nine-Week Low on Europe Concern, IMF Forecast

Tuesday, 07 October 2014 04:30 PM

U.S. stocks declined, with the Standard & Poor’s 500 Index slumping to a nine-week low, as the International Monetary Fund cuts it growth forecast and warned of “frothy” equities amid signs of slowing growth in Europe.

The S&P 500 sank 1.5 percent to 1,935.01 at 4 p.m. in New York to the lowest level since Aug. 12. Today’s slide was the biggest in almost three weeks. Selling accelerated in afternoon trading as index futures contracts expiring in December slipped below 1,940, a level where two previous declines had ended earlier today.

The Dow Jones Industrial Average lost 274.64 points, or 1.6 percent, to 16,717.27, the biggest retreat since July 31. The Russell 2000 Index of small companies plunged 1.7 percent. The Chicago Board Options Exchange Volatility Index jumped 13 percent to 17.43 today, the highest since March 14.

“It’s definitely a risk-off day with ugly European data and growth concerns and I think we’re seeing some of that negative sentiment just getting ahead of itself here,” Mark Kepner, an equity trader at Chatham, New Jersey-based Themis Trading LLC, said by phone.

Treasuries rose, with yields on 10-year notes falling to the lowest since Aug. 29, and gold advanced a second day.

The IMF cut its outlook for global growth in 2015 and warned about the risks of rising geopolitical tensions and a financial-market correction as stocks reach “frothy” levels.

IMF Outlook

The S&P 500 fell yesterday for the first time in three days as small-cap shares resumed a selloff. The index has fallen 3.8 percent from a record reached Sept. 18 as the Federal Reserve remains on track to end bond purchases this month. The gauge is up 4.7 percent this year and has not slid more than 10 percent in three years. The Dow’s decline today trimmed its gain in 2014 to 0.9 percent.

According to the IMF report, a sustained period of policy interest rates near zero in advanced economies has raised the risk that some financial markets may be overheating.

The IMF warning comes three months after the Fed said prices were stretched in some small-cap and biotechnology shares. Since then, the Nasdaq Biotechnology Index has rallied 6.6 percent, while the Russell 2000 has fallen 6 percent.

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., said today at the Fortune’s Most Powerful Women Summit that stocks are now “in a zone of reasonableness.”

Data today showed German industrial production fell the most since 2009, underscoring the risk of slowdown in the region’s largest economy as concern grows that the European Central Bank’s stimulus won’t be enough to boost inflation and revive the economy.

Not Perfect

“A combination of not-perfect economic data and some geopolitical risk has put doubt in some investors’ minds and that brings some volatility,” Dan Curtin, the Boston-based global investment specialist at JP Morgan Private Bank, said in a phone interview. “The dollar surge, Hong Kong protests, Ebola scare and weakening oil prices, somewhere circled together in those things is the root of this recent pullback.”

In Spain health officials isolated two people to see if they’re infected with Ebola after a Madrid nursing assistant became the first person outside Africa to be diagnosed with the viral illness.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, rallied for seven weeks and closed at a four-year high on Oct. 3 as investors speculated on the timing of an interest-rate increase by the Fed. West Texas Intermediate oil fell below $90 a barrel last week for the first time in 17 months.

Meat, Potatoes

Investors will turn to corporate reports for clues on the strength of the U.S. economy, with Alcoa Inc. unofficially starting the earnings season after tomorrow’s close. Profit at companies in the S&P 500 rose 4.9 percent in the July-September period, according to the average estimate of analysts in a Bloomberg survey.

“We don’t have earnings data to drive us yet this week and let’s face it, that’s the meat and potatoes of the market,” Karyn Cavanaugh, the New York-based senior market strategist at Voya Investment Management LLC, said in a phone interview.

The Federal Open Market Committee will release minutes from its Sept. 16-17 meeting tomorrow. Investors have been concerned the central bank may raise interest rates sooner than anticipated as the U.S. economy gains strength. Forecasts for the Fed to raise interest rates in mid-2015 are “reasonable” as policy makers wait for unemployment to fall further and inflation to rise, New York Fed President William C. Dudley said today.

“It still is premature to begin to raise interest rates,” Dudley said today in a speech in Troy, New York. “The labor market still has too much slack and the inflation rate is too low.”

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U.S. stocks declined, with the Standard & Poor's 500 Index slumping to a nine-week low, as the International Monetary Fund cuts it growth forecast and warned of "frothy" equities amid signs of slowing growth in Europe.
stocks, Europe, IMF, Dow
Tuesday, 07 October 2014 04:30 PM
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