U.S. Stocks Decline as Russell 2000 Heads for Correction

Los Angeles (Oct 1)   Marc Faber, publisher of the Gloom, Boom & Doom report, talks about the outlook for global stocks and investment strategy. Faber speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)
U.S. stocks tumbled, with the Russell 2000 Index poised to enter a correction, while Treasuries rallied as the Federal Reserve remains on pace to end bond-buying this month amid growing signs of economic weakness in Europe.

The Standard & Poor’s 500 Index (SPX) declined 1.2 percent at 1:35 p.m. in New York. The Russell 2000 dropped 1.3 percent and is down 10 percent from a March record. The Stoxx Europe 600 Index fell 0.8 percent. The rate on 10-year Treasury notes sank eight basis points to 2.41 percent. Bunds rose after Germany sold 10-year notes to yield less than 1 percent for the first time. U.S. oil climbed from a 17-month low as supplies fell.

Euro-area factories reduced prices by the most in more than a year and German manufacturing shrank, underlining the mounting challenge facing policy makers before the central bank meets tomorrow. U.S. manufacturing cooled in September following the strongest rate of growth in three years, while companies accelerated hiring for the first time in three months. A person familiar with German government policy said Russia risks an escalation of sanctions. Hong Kong’s pro-democracy protests swelled for a sixth day.

“The headwinds have come to the forefront and investors are starting to recognize that,” Randy Bateman, chief investment officer of Huntington Asset Advisors, which manages about $2.8 billion, said by phone. “You’ve got a whole bunch of geopolitical situations and you have concerns about economic weakness. We’ve always relied on the Fed priming the pump. This is the month the pump dries up so now people are focused on these other issues.”

Rate Concern

The Fed is set to end later this month asset purchases that have helped nearly triple the S&P 500 during the bull market at a time when conflict between Ukraine and Russia threatens to tip Europe back into a recession and economists forecast growth from Japan to China will slow every year through 2016.

More than $200 billion in assets was erased from U.S. equity markets during the past three months, as stronger economic data fueled concern the Fed may also raise interest rates sooner than anticipated. The U.S. economy expanded in the second quarter at the fastest rate since 2011.

The S&P 500 has fallen three straight days and is down 3.1 percent since closing at a record on Sept. 18. The index added 0.6 percent last quarter, its seventh gain and longest streak since 1998. The gauge has not fallen four straight days this year, and has not slid more than 10 percent in three years.

 
Ebola Scare

Among stocks moving today, Sarepta Therapeutics (SRPT) Inc. led makers of experimental Ebola treatments higher following the first reported U.S. case of the deadly disease. That also sent carriers from American Airlines Group Inc. to Delta Air Lines Inc. lower.

The Russell 2000 tumbled 7.7 percent in the third quarter, its worst performance in three years, as investors sold speculative stocks. The index is approaching a 10 percent retreat from an all-time closing high on March 4.

The small-cap gauge is down 6.6 percent this year, while the S&P 500 has advanced 5.5 percent.

“The market is showing nervousness just over the last couple weeks as we’ve been having this choppiness, especially in smaller companies,” Tim Courtney, who helps oversee about $1.3 billion as chief investment officer of Exencial Wealth Advisors, said in a phone interview from Oklahoma City. “Small caps have historically led the way down. This could be the beginning of a normal 10 percent correction.”

While the Institute for Supply Management’s index dropped to 56.6 from 59 in August, the gauge’s average over the past three months was the highest since early 2011, figures from the Tempe, Arizona-based group showed today.

Dollar Rally

The Fed has been analyzing U.S. economic reports for cues on whether growth will withstand the end of quantitative easing and higher interest rates.

Concern that the central bank will be forced to move forward the timing of any rate increase bolstered the greenback last quarter. The Bloomberg Dollar Spot Index, which measures the currency against a basket of 10 peers, rallied 6.7 percent in the July-September period, the most since 2008. The index was little changed today.

The dollar rose 0.1 percent to $1.2613 per euro. It touched $1.2571 yesterday, the strongest level since September 2012. The greenback dropped 0.4 percent to 109.23 yen after rising earlier to to 110.09 yen, the highest since Aug. 25, 2008.

Treasuries (USGG10YR) rallied as relative higher yields and the strong dollar drove international investors into U.S. government debt amid concern that global growth is slowing.

Benchmark 10-year yields yielded almost the most versus their German counterparts since 1999 after the dollar touched a two-year high versus the euro.

Deflation Threat

The yields have gained versus bunds for a record nine quarters as the European Central Bank unveiled a series of stimulus measures to boost credit lending and combat the threat of deflation. The ECB is forecast to announce tomorrow details of its plan to buy asset-backed securities.

The ECB is on a mission to avert deflation as the euro region’s economic landscape deteriorates. Purchasing Managers’ Indexes from Markit Economic showed manufacturing also contracted in France, Austria and Greece, with a gauge for the 18-nation region pointing to near-stagnation. A separate report showed spillover to the U.K., with factory growth there at a 17-month low.

The Stoxx 600 fell today after climbing 0.4 percent last quarter, a fifth increase and the longest stretch since 2006. J Sainsbury Plc slumped to the lowest price in more than 11 years after saying it won’t see a return to growth in same-store sales this year. Orange SA fell 7 percent as Bpifrance sold a stake in the company for 580 million euros ($730 million).

Emerging Equities

Developing-nation stocks dropped for a fifth day and currencies slid amid prospects for higher U.S. interest rates. The MSCI Emerging Markets Index fell 0.9 percent to the lowest level since May.

The ruble weakened 0.2 percent versus a target basket of dollars and euros, a day after briefly crossing the level at which the central bank intervenes to halt declines. The Brazilian real depreciated 1.3 percent and South Korea’s won dropped to a six-month low. Pro-democracy protests continued in Hong Kong with markets in the city and China shut for holidays.

The Bloomberg Commodity Index (BCOM) rose 0.4 percent today after slumping 12 percent in the third quarter, the most since 2008.

West Texas Intermediate oil climbed 1 percent to $92.10 a barrel, after tumbling 3.6 percent yesterday, the biggest drop since November 2012. Crude stockpiles slipped 1.36 million barrels to 356.6 million, the Energy Information Administration said today.

Platinum, used in automobile catalytic converters, fell as much as 2.8 percent to $1,263.60 an ounce in New York, the lowest since September 2009.

Source:  Bloomberg