IBJNews

Falling commodities give Dow worst day of the year

Back to TopCommentsE-mailPrintBookmark and Share

Worries about an economic slowdown in China fueled a steep drop in commodity prices Monday, spooking investors and giving the stock market its worst day of the year.

The trigger for the sell-off came from China, where the world's second-largest economy expanded 7.7 percent in the first three months of the year, well below forecasts of 8 percent or better. That news pummeled copper, oil and other commodities. Shares of oil and mining companies fared the worst because China is a huge importer of their products.

The decline came after a pile of negative economic reports. In addition to the concerns about China, a separate report showed weak manufacturing in the Northeast, and a home builders' survey indicated housing activity isn't going to be strong, either, said Steven Ricchiuto, chief economist for Mizuho Securities.

"People are realizing that the global economy isn't as strong as they expected it to be," he said.

The market began tumbling hours before reports emerged of two bombs exploding in the packed streets near the finish line of the Boston Marathon. The attack that killed two people and injured more than 100 was just one more thing to worry investors.

The pullback disrupted, at least for the moment, the phenomenal rally that has sent the Dow Jones industrial average up 13 percent and the Standard & Poor's 500 index up 11 percent in 2013. Both indexes marked record highs only last Wednesday. But the market's exceptional performance has fueled widespread speculation about an inevitable retreat.

Concerns that Cyprus and other troubled European countries may sell gold to raise cash have also weighed on prices for precious metals, said Dan Greenhaus, chief global strategist at the brokerage BTIG.

The Dow tumbled 265.86 points to close at 14,599.20, a decline of 1.8 percent. Caterpillar, a maker of heavy equipment used by miners, led the index lower, falling 3 percent, to $82.27. The S&P 500 index slumped 36.48 points to 1,552.37, a loss of 2.3 percent.

The S&P was led by Freeport-McMoRan Copper & Gold, which fell 8 percent to $29.27. Analysts at Citigroup placed a "sell" rating on the mining giant on the expectation that copper prices will continue sliding.

The Nasdaq composite fell 78.46 points, or 2.4 percent, to 3,216.49.

It was the biggest drop for the stock market since Nov. 7 — Election Day — last year.

Of the 10 industry groups in the S&P 500, materials and energy stocks fared the worst, losing 4 percent. Indexes of small companies and transportation stocks, which are more vulnerable to swings in the economy, also fell 4 percent.

Crude oil prices hit their lowest level since mid-December, sliding $2.58 to finish at $88.71 in New York trading. And gold fell $140, plunging below $1,400 an ounce for the first time in two years as a sell-off in metals continued from last week. Gold has now slumped $203 an ounce over the past two days.

Frank Fantozzi, CEO of Planned Financial Services, a wealth management firm, says people had bought gold since the financial crisis on the belief that it was safe place to keep money. But now that the metal has slid 20 percent this year, they're jumping out.

"I think you're getting some panic selling right now" in the gold market, Fantozzi said. "People who have been holding on to gold expecting a rebound are now thinking, 'I better get out.'"

Cetin Ciner, a finance professor and expert in precious metal markets at the University of North Carolina, Wilmington, said gold had also offered a protection against rampant inflation when the economy recovered. That helped push gold prices as high at $1,900 in 2011, but the high inflation they worried about still hasn't hit.

Gold "was bound to collapse at some stage," Ciner said. "People were waiting and waiting for higher inflation, and they finally realized it's not happening."

Just seven stocks rose in the S&P 500. Among them, Citigroup inched up 9 cents, to $45.87, after the country's third-largest bank reported earnings that beat analysts' estimates. Stronger revenue from trading and investment banking lifted the bank's results.

Sprint Nextel jumped after Dish Network offered $25 billion to buy the company. Dish's bid is aimed at beating an offer from the Japanese phone company SoftBank. Sprint surged 14 percent, to $7.06, and Dish fell 2 percent, to $36.77.

Thermo Fisher Scientific offered $13.6 billion to buy genetic testing equipment maker Life Technologies. That works out to $76 in cash for each share of Life Technologies. Thermo Fisher's stock fell 1 percent, to $78.58, while Life Technologies rose 7 percent, to $73.11.

In the market for U.S. government bonds, which traders often buy when they're concerned about the economy, the yield on the 10-year Treasury note retreated to 1.69 percent, its lowest level of the year. That's down from 1.72 percent late Friday.

But for all the alarm among investors, experts doubt that the drop in stock prices is a harbinger of another global recession. Deep government budget cuts have slowed the U.S. economy and kept Europe in recession. And China's economy is cooling. But economists still expect the U.S. economy — the world's biggest — to gain strength during the second half of the year.

Nearly four years after the Great Recession ended, the American economy has a stronger foundation. Rising home prices and near-record stock prices make consumers feel wealthier and more willing to spend. And although China's growth was below expectations, it was still a pace that would be considered strong anywhere else.

The broader outlook for stocks was not likely to be "tremendously affected" by Monday's sell-off, Ciner said.

"There's so much money being pumped into the system, and the money has to go somewhere," he said, referring to the more than $2 trillion in bonds the Federal Reserve has bought since the Great Recession.

And there's ample evidence that the U.S. economy is making substantial improvements.

"There is some growth. Profits are up. So I don't think commodities will affect stocks," Ciner said. "There may be some volatility, but I think stocks will continue to go up in the short term."

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. The Affordable Care Act is not the reason for the slow recovery and lack of high paying jobs for low skill workers. This is a trend that has been going since the early 80's. The recovery is real in the sense that GDP has been growing steadily at a rate of roughly 2.5% since the recession ended in late 2009 (newsflash, the stimulus worked) and the unemployment has been steadily dropping. The reason issue we are facing deals with a skills gap (not enough workers with the right credentials / experience) and wage stagnation due to corporate America being focused solely on maximizing profits for shareholders and not caring about the American middle class. Why should they? Multi-billion dollar mutlinational companies keep offshoring their profits in order to avoid paying taxes (which makes our deficit worse) they convince Americans to fight amongst themselves. If you want to create jobs and reduce the deficit, raise the minimum wage and change corporate tax laws. Of course, if you want to continue to belive that tax cuts for wealthy create jobs (which they don't) and allow corporations and the wealthy to continue to make you cover more and more of the costs of maintaining infrastructure, funding the military and other government services, then keep voting Republican. Hopefully someday you wake up and realize what's been going on since Reagan took office.

  2. Helloooooo, my name is Kate. I am so joyous to share this wonderful testimony about what Dr. Osoijiakhena, a great spell caster, did for me and my family. I wedded a year and 6 months ago, we were very happy during this whole period, i really love my husband so so much. I started noticing changes when he started coming home late at night, he stop paying attention to me, i later found out that he was having an affair with another lady, i dont know what she did to get to him but she really got a hold on him. He started spending weekends with her, and threaten for divorce. I was so heart broken and devastated, i spent many night thinking on how to get my husband back. A friend took it upon herself to to introduce me to one Dr. Osoijiakhena, a great spell caster, who once helped her with a spell that reunited her family and helped her husband secure a very prolific job. Though i had my doubts and never believed, but i decided to give it a try because i was helpless. I contacted Dr. Osoijiakhena, the Spell caster, to help me reunite my family by bringing back my husband from that other woman and break whatever hold she had on him. He only just told me that it's a minor issue, once i provide and do everything he will ask me to do, then i will have my family back again. I did everything he required. And he did it!!!!! My husband returned back to me and pleaded for forgiveness, and i also secured a well paid job in a big company, just as the great spell caster, Dr. Osoijiakhena said. I am so so happy to share my testimony on this wall. I am using this medium to tell every one that has same or similar problem to try the great Dr. Osoijiakhena through his mail: drosoijiakhenaspell@gmail.com......he is so real!!!!! He can also help you with: (1) IF YOU WANT YOUR EX GIRL/BOYFRIEND TO RETURN BACK TO YOU (2) IF YOU WANT YOUR HUSBAND/WIFE BACK (3) IF YOU WANT TO BE PROMOTED IN YOUR OFFICE (4) IF YOU WANT YOUR MAN OR WOMAN TO LOVE YOU (5) IF YOU WANT A CHILD (BARREN) (6) IF YOU WANT TO BE RICH/WEALTHY (7) IF YOU WANT YOUR HUSBAND/WIFE TO BE YOURS FOREVER (8) IF YOU'VE BEEN SCAMMED AND WANT YOUR MONEY BACK (9) IF YOU ARE HAVING DELAY IN GETTING MARRIED (10) IF YOU HAVE A COURT CASE AND WANT TO WIN (11) IF YOU'RE A DRUG ADDICT AND YOU WANT TO REALLY STOP (12) IF YOU CANNOT IMPREGNATE A WOMAN (STERILE) (13) ALL TYPES OF DISEASES I advise you to contact the great Dr. Osoijiakhena, the spiritualist for solutions via his email: drosoijiakhenaspell@gmail.com

  3. Sergeant McNally is buried in Cathcart Cemetery on a hill known as McNally%u2019 Hill. The Cemetery is in a natural bushland setting and is very well maintained.The emergency department at Ararat Hospital is known as the John McNally Emergency Department. Cathcart is approx. 4.6 km from Ararat and is approx. 345 m above sea level.

  4. My spring chicken of a Mom is turning 75 years young. She is a big fan of Frankie and I think she would get a big kick out of the film. I wanted to take her to the Broadway play but am priced out. Thanks for your time and consideration. Oh yea, Wildwood! Joie

  5. I thought this company would go bankrupt in 2013/2014. I predicted that four years ago. I was wrong. It will take another couple of years, but they will get there.

ADVERTISEMENT